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Here’s the Tax Deductible 11th Cir. Opinion Judge Jill Pryor Has Been Bayin’ Her Colleagues For

And it is an $17 million dollar windfall for Pryor care of her judicial colleagues, with Judge Babs Lagoa leading the line in this unanimous, 36 page published opinion.

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LATEST UPDATE ON JUDGE JILL PRYOR's TAX CASES

David F. Hewitt, et al. v. Commissioner of IRS

LIF COMMENT

You are about to read corruption at it’s highest level, and we’re not referring to the Hewitt’s, but the delayed and delayed and delayed again tax easement cases against Judge Jill Pryor et al in Tax Court which is about a $17M+ tax dodge.

Judge Jill A. Pryor desperately needed a published tax case opinion and after 2 long years waiting – and in the interim stalling her two tax cases – the 11th Circuit, where she sits as a judge, duly obliges.

This collegiate opinion by her judicial colleagues was predicted by LIT and LIF.

The opinion is unanimous, has a designated lower court hand-picked judge to sit on the panel and despite its length, a 36-page opinion on a considerably contentious matter, there is no concurring or dissenting opinion.

We find that disturbing and unusual in the Eleventh Circuit, when reviewing past published opinions.

This precedential opinion is issued as a new year gift to Ochlocracy and a Corrupt Federal Judiciary.

DEC 29, 2021 | REPUBLISHED BY LIT: DEC 30, 2021

KPMG (UK) Partner Hewitt (no, not this Hewitt, but tweet is highly relevant)

Before WILSON, LAGOA, Circuit Judges, and MARTINEZ, District Judge (from MIAMI, SD Fl. District Court, of course, where Lagoa’s father-in-law is also a sitting judge).

LAGOA, Circuit Judge (Jones Day Partner and attorney husband Paul Huck Jr., is known as the “GodFather” of the Federalist Society in MIAMI):

David and Tammy Hewitt seek review of the Tax Court’s order determining that they were not entitled to carryover a char itable contribution deduction for the donation of a conservation easement (the “Easement”).

The Tax Court concluded that the Easement did not satisfy the “protected-in-perpetuity” require- ment, see I.R.C. § 170(h)(5), because the Easement deed violated the judicial extinguishment proceeds formula set forth in Treas. Reg. § 1.170A-14(g)(6)(ii).

Specifically, in the event of judicial extinguishment, the Easement deed subtracts the value of post-donation improvements to the property from the extinguishment proceeds before determining the donee’s share of the proceeds, which the Commissioner asserts violated § 1.170A-14(g)(6)(ii) and, thus, § 170(h)(5)’s protected-in-perpetuity requirement.

On appeal, the Hewitts make several arguments as to why the Tax Court erred.

They contend that the Commissioner’s inter- pretation of § 1.170A-14(g)(6)(ii) is incorrect, as subtraction of the value of post-donation improvements from the proceeds allocated to the donee is the “better reading” of the regulation.

As to this interpretation argument, we recently determined, in TOT Prop- erty Holdings, LLC v. Commissioner, that § 1.170A-14(g)(6)(ii) “does not indicate that any amount, including that attributable to improvements, may be subtracted out.” 1 F.4th 1354, 1363 (11th Cir. 2021) (quoting PBBM-Rose Hill, Ltd. v. Comm’r, 900 F.3d 193, 208 (5th Cir. 2018)).

But, based on the taxpayers’ concession in TOT, id. at 1362 & n.13, we did not address whether § 1.170A-14(g)(6)(ii) was procedurally valid under the Administrative Procedures Act (“APA”) or substantively valid under the framework in Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984).

Unlike the taxpayers in TOT, the Hewitts challenge the regulation’s validity on appeal.

Specifically, the Hewitts argue that the Commissioner’s interpretation of § 1.170A-14(g)(6)(ii)—prohibiting the subtraction of the value of post-donation improvements to the property on which a conservation easement exists from the proceeds in the event of judicial extinguishment—is arbitrary and capricious for violating the procedural requirements of the APA, see 5 U.S.C. § 706, because the U.S. Treasury Department failed to respond to significant comments as to the improvements issue in promulgating the regulation.

The Hewitts further argue that the regulation is substantively invalid under Chevron as an unreasonable interpretation of the statute.

After careful review, and for the reasons explained below, we conclude that the Commissioner’s interpretation of § 1.170A- 14(g)(6)(ii) is arbitrary and capricious and violates the APA’s procedural requirements.1

And because we find the Commissioner’s interpretation of § 1.170A-14(g)(6)(ii) to be invalid under the APA, the Easement deed’s subtraction of the value of post-donation improvements from the extinguishment proceeds allocated to the donee does not violate § 170(h)(5)’s protected-in-perpetuity requirement.

Accordingly, we reverse the Tax Court’s order disallowing the Hewitts’ carryover deduction for the conservation easement and remand for further proceedings.

1 Because we conclude that § 1.170A-14(g)(6)(ii) is procedurally invalid under the APA, we do not reach the Hewitts’ Chevron-related arguments.

I. FACTUAL AND PROCEDURAL BACKGROUND

David and Tammy Hewitt2 reside in Randolph County, Alabama, near Alabama’s border with Georgia. David’s father moved to Alabama in the early 1950s, acquiring land there to raise cattle, farm, and harvest timber. In the early 1990s, his father transferred a portion of this land to David’s sister.

David subsequently acquired 257.2 acres of land in Randolph County (the “Property”) in four transactions.

His sister transferred approximately 232 acres to David through a series of three warranty deeds dated January 27, 1997, January 23, 1998, and July 1, 1998. In 2001, David purchased 25 more acres of adjected land and bought out the interest of two unrelated persons who co- owned a 400-acre parcel with his father.

By 2012, David and his sister owned approximately 1,325 acres in Randolph and Cleburne Counties, Alabama.

The cumulative property owned between the two siblings had no zoning ordinances at the time of the

2 We refer to the Hewitts individually by their first names where relevant.

Easement’s grant and consisted of pastureland along a county road and wooded areas with steep topography, rough terrain, and limited road access. David has used, and continues to use, portions of the Property as a cattle ranch.

On December 28, 2012, David donated the Easement on the Property to and for the benefit of Pelican Coast Conservancy, Inc., a wholly owned subsidiary of the Atlantic Coast Conservancy, Inc. (collectively, “the Conservancy”), through a document entitled Deed of Conservation Easement, which was recorded with the Probate Judge for Randolph County the same day.

The Easement deed provides that the Easement’s purpose is “to assure that the Property will be retained forever predominately in its natural condition and to prevent any use of the Property that will impair or interfere with the Conservation Values as set forth in this Easement.”

The Easement deed sets forth a list of “prohibited uses” and permits the Conservancy the right to enter upon the Property at reasonable times to preserve and protect the conservation features. The deed also contains a “permitted uses” section, which reserved to the Hewitts the right to build certain types of improvements on certain areas of the Property.

Additionally, section 15 of the deed governs judicial extinguishment of the
Easement. Subsection 15.1 provides:

Extinguishment.

If circumstances arise in the future such as render the purpose of this Easement impossible to accomplish, this Easement can only be terminated or extinguished, whether in whole or in part, by judicial proceedings in a court of competent jurisdiction, and the amount of the proceeds to which Conservancy shall be entitled, after the satisfaction or prior claims, from any sale, exchange, or involuntary conversion of all or any portion of the Property subsequent to such termination or extinguishment (herein collectively “Extinguishment”) shall be determined to be at least equal to the perpetual conservation restriction’s proportionate value unless other- wise provided by Alabama law at the time, in accordance with Subsection 15.2 . . . .

In turn, subsection 15.2 provides:

Proceeds.

This Easement constitutes a real property interest immediately vested in Conservancy. For the purposes of this Subsection, the parties stipulate that this Easement shall have at the time of Extinguishment a fair market value determined by multiplying the then fair market value of the Property unencumbered by the Easement (minus any increase in value after the date of this grant attributable to improve- ments) by the ratio of the value of the Easement at the time of this grant to the value of the Property, without deduction for the value of the Easement, at the time of this grant For the purposes of this paragraph, the ratio of the value of the Easement to the value of the Property unencumbered by the Ease- ment shall remain constant. (emphasis added).

As stipulated by the parties, the Conservancy provided David with a contemporaneous written acknowledgement within the meaning of I.R.C. § 170(f)(8), and the Conservancy was a “qualified organization” within the meaning of I.R.C. § 170(h)(3) at the time of the Easement donation. The Commissioner also does not con- test that the Property complied with the requirements of I.R.C. § 170(h)(4)(A)(ii)–(iii).

While David is the sole owner of the Property, the Hewitts jointly filed their tax returns for the relevant tax years at issue— 2012, 2013, and 2014.

For the 2012 tax year, the Hewitts reported a noncash, charitable contribution for the donation of the Easement in the amount of $2,788,000.

An appraisal of the Easement was attached to their 2012 return, which the Commissioner—only for the purposes of this appeal—does not contest was a qualified appraisal prepared by a qualified appraiser as required by I.R.C. § 170(f)(11)(E).

However, the Hewitts and the Commissioner do not stipulate to the appraisal’s contents. Due to limitations on charitable contribution deductions, the deduction for the Easement contribution was $57,738.

The Hewitts timely filed their federal income tax returns for the 2013 and 2014 tax years.

The 2013 return claimed a noncash, charitable contribution carry-forward deduction from the 2012 charitable contribution deduction for the Easement in the amount of $1,868,782, and the 2014 return carried the same deduction in the amount of $861,480.

On August 16, 2017, the Commissioner timely mailed a statutory notice of deficiency (“NOD”) for the 2013 and 2014 taxable years to the Hewitts.

The NOD provided that the Hewitts owed:

(1) a $336,894 tax deficiency and an I.R.C. § 6662 penalty of $134,757.60 for the 2013 year;

and

(2) a $347,878 tax deficiency and $136,458.40 penalty for the 2014 year.

The NOD disallowed $2,730,262 of the charitable contribution carryover deduction from 2012 for 2013 and 2014.On November 14, 2017, the Hewitts timely filed a petition for redetermination with the Tax Court, challenging the disallowances for the carryover deductions related to the Easement in the NOD.

In a pretrial memorandum, the Commissioner argued that the Easement deed failed to comply with Treas. Reg. § 1.170A- 14(g)(6) due to an “improvements clause” included therein.

The case proceeded to trial.

In their post-trial brief, the Hewitts contended, among other things, that § 1.170A-14(g)(6)(ii), as interpreted by the Commissioner, was not a valid exercise of Treasury’s rulemaking authority.

On June 17, 2020, the Tax Court issued a memorandum opinion determining that the Hewitts were not entitled to carryover the charitable contribution deduction for the donation of the Easement.3

The Tax Court explained that section 15 of the deed “subtracts the value of posteasement improvements before determining the Conservancy’s share of the extinguishment proceeds and fails to allocate the extinguishment proceeds in accordance with” § 1.170A-14(g)(6), as that regulation “does not permit the value of posteasement improvements to be subtracted from the proceeds before determining the donee’s share.”

The Tax Court rejected the Hewitts’ argument that an easement donee’s right to any extinguishment proceeds is limited to those from the property as it existed at the time of the grant as contrary to the regulation’s text.

Therefore, the Tax Court explained that “[f]or purposes of the extinguishment provisions, the subject property may change, but the donee’s property right to the extinguishment proceeds may not.”

The Tax Court also rejected the Hewitts’ challenge to § 1.170A-14(g)(6)(ii)’s procedural and substantive validity based on its decision in Oakbrook Land Holdings, LLC v. Comm’r, 154 T.C. 180 (2020).

This appeal ensued.

3 The Tax Court found the Hewitts were not liable for the penalties assessed against them in the NOD, and the Commissioner does not challenge this rul- ing on appeal.

II. STANDARD OF REVIEW

We review the Tax Court’s legal conclusions de novo and its factual findings for clear error. Kardash v. Comm’r, 866 F.3d 1249, 1252 (11th Cir. 2017).

III. ANALYSIS

Under the APA, a “reviewing court shall hold unlawful and set aside agency action, findings, and conclusions found to be arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A).

Our review standard is “narrow,” and we “will not substitute [our] judgment for that of the agency.” Lloyd Noland Hosp. & Clinic v. Heckler, 762 F.2d 1561, 1565 (11th Cir. 1985). However, “[i]n employing this defer- ential standard of review,” we do “not rubber stamp the action of the agency.” Port of Jacksonville Mar. Ad Hoc Comm., Inc. v. U.S. Coast Guard, 788 F.2d 705, 708 (11th Cir. 1986).

Rather, “we must determine whether the decision was based on a consideration of the relevant factors and whether there was a clear judgment error.” Lloyd Noland, 762 F.2d at 1565 (citing Motor Vehicles Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)).

Furthermore, “we may not supply a reasoned basis for the agency’s ac- tion that the agency itself has not given,” although we will “uphold a decision of less than ideal clarity if the agency’s path may reason- ably be discerned.” State Farm, 463 U.S. at 43 (first quoting SEC v. Chenery Corp., 332 U.S. 194, 196 (1974), then quoting Bowman Transp. Inc. v. Ark.-Best Freight Sys., 419 U.S. 281, 286 (1974)); ac- cord Judulang v. Holder, 565 U.S. 42, 52–55 (2011). And “courts may not accept . . . counsel’s post hoc rationalizations for agency actions,” as “an agency’s action must be upheld, if at all, on the basis articulated by the agency itself.” State Farm, 565 U.S. at 50.

The APA “prescribes a three-step procedure for so-called ‘notice-and-comment rulemaking.’” Perez v. Mortg. Bankers Ass’n, 575 U.S. 92, 96 (2015); accord 5 U.S.C. § 553.

First, an agency “must issue a ‘[g]eneral notice of proposed rulemaking,’ ordinarily by publication in the Federal Register.” Perez, 575 U.S. at 96 (alter- ation in original) (quoting § 553(b)).

Second, “if ‘notice [is] re- quired,’ the agency must ‘give interested persons an opportunity to participate in the rule making through submission of written data, views, or arguments,’” and the agency “must consider and respond to significant comments received during the period for public comment.” Id. (alteration in original) (quoting § 553(c)).

Third, in promulgating the final rule, the agency “must include in the rule’s text ‘a concise general statement of [its] basis and pur- pose.’” Id. (alteration in original) (quoting § 553(c)). As the Su- preme Court has explained, “Rules issued through the notice-and- comment process are often referred to as ‘legislative rules’ because they have the ‘force and effect of law.’” Id. (quoting Chrysler Corp. v. Brown, 441 U.S. 281, 302–03 (1979)).

Thus, “[t]he APA requires the agency to incorporate into a new rule a concise general statement of its basis and purpose.” Lloyd Noland, 762 F.2d at 1566. As we have explained, “state- ment[s] may vary, but should fully explain the factual and legal ba- sis for the rule.” Id.

Indeed, “[b]asis and purpose statements must enable the reviewing court to see the objections and why the agency reacted to them as it did,” id., as “

[o]ne of the basic procedural requirements of administrative rulemaking is that an agency must give adequate reasons for its decisions,” Encino Motorcars, LLC v. Navarro, 579 U.S. 211, 221 (2016).

And, in the statement, the agency must rebut “vital relevant” or significant comments. See Lloyd Noland, 762 F.2d at 1567; Hussion v. Madigan, 950 F.2d 1546, 1554 (11th Cir. 1992) (“Under the ‘arbitrary and capricious’ standard of review, an agency is required to respond to significant comments that cast doubt on the reasonableness of the rule the agency adopts.” (quoting Balt. Gas & Elec. Co. v. United States, 817 F.2d 108, 116 (D.C. Cir. 1987))).

The purpose of notice-and- comment rulemaking is to “give[] affected parties fair warning of potential changes in the law and an opportunity to be heard on those changes” while “afford[ing] the agency a chance to avoid er- rors and make a more informed decision.” Azar v. Allina Health Servs., 139 S. Ct. 1804, 1816 (2019).

Turning to the statutory and regulatory tax provisions at hand, I.R.C. § 170(a) generally allows taxpayers to deduct certain charitable contributions.

While a taxpayer normally is not entitled to deduct the donation of “an interest in property which consists of less than the taxpayer’s entire interest in such property,” id. § 170(f)(3)(A), an exception is made for a “qualified conservation contribution,” id. § 170(f)(3)(B)(iii), (h); accord TOT, 1 F.4th at 1361.

Congress created this exception, codified at I.R.C.§ 170(f)(3)(B)(iii), (h), in 1980.

Tax Treatment Extension Act of 1980, Pub. L. No. 96-541, § 6, 94 Stat. 3204, 3206; Oakbrook, 154 T.C. at 185. Under § 170(h), for a contribution to be a “qualified conservation contribution,” the contribution must be “(A) of a qualified real property interest, (B) to a qualified organization, (C) exclusively for conservation purposes.” § 170(h)(1).

A “qualified real property interest” includes “a restriction (granted in perpetu- ity) on the use which may be made of the real property.” 170(h)(2)(C). Additionally, § 170(h)(5)(A) provides that, for pur- poses of subsection (h), “[a] contribution shall not be treated as exclusively for conservation purposes unless the conservation pur- pose is protected in perpetuity.”

The statute, however, does not define the “protected in perpetuity” requirement. TOT, 1 F.4th at 1362.

On May 23, 1983, Treasury issued a notice of proposed rule- making with “proposed regulations relating to contributions of partial interests in property for conservation purposes.”

Qualified Conservation Contribution; Proposed Rulemaking, 48 Fed. Reg. 22,940, 22,940 (May 23, 1983). Then, on January 14, 1986, Treasury issued final regulations, including the regulation at issue in this case—Treas. Reg. § 1.170A-14(g)(6)—governing the allocation of proceeds between the donor and donee in the event of judicial ex- tinguishment of a donated conservation easement. Income Taxes; Qualified Conservation Contributions, 51 Fed. Reg. 1496 (Jan. 14, 1986). Section 1.170A-14(g)(6), titled “Extinguishment,” provides:

(i) In general. If a subsequent unexpected change in the conditions surrounding the property that is the subject of a donation under this paragraph can make impossible or impractical the continued use of the property for conservation purposes, the conservation purpose can nonetheless be treated as protected in perpetuity if the restrictions are extinguished by judicial proceeding and all of the donee’s proceeds (deter- mined under paragraph (g)(6)(ii) of this section) from a subsequent sale or exchange of the property are used by the donee organization in a manner con- sistent with the conservation purposes of the original contribution.

(ii) Proceeds. [F]or a deduction to be allowed under this section, at the time of the gift the donor must agree that the donation of the perpetual conservation restriction gives rise to a property right, immediately vested in the donee organization, with a fair market value that is at least equal to the proportionate value that the perpetual conservation restriction at the time of the gift, bears to the value of the property as a whole at that time. . . .

For purposes of this para- graph (g)(6)(ii), that proportionate value of the do- nee’s property rights shall remain constant. Accordingly, when a change in conditions give rise to the ex- tinguishment of a perpetual conservation restriction under paragraph (g)(6)(i) of this section, the donee or- ganization, on a subsequent sale, exchange, or involuntary conversion of the subject property, must be entitled to a portion of the proceeds at least equal to that proportionate value of the perpetual conservation restriction, unless state law provides that the donor is entitled to the full proceeds from the conversion without regard to the terms of the prior perpetual conservation restriction.

To summarize, “the regulations require that the donee of an easement be granted a vested right to the value of judicial sale proceeds (e.g. in condemnation) multiplied by ‘a fraction equal to the value of the conservation easement at the time of the gift, divided by the value of the property as a whole at that time.’” TOT, 1 F.4th at 1362 (quoting PBBM-Rose Hill, 900 F.3d at 207).

And, in TOT, we found that § 1.170A-14(g)(6)(ii)’s proceeds formula “does not al- low for ‘any increase in value after the date of th[e] grant attribut- able to improvements’ to be subtracted from the extinguish- ment proceeds before the fraction is applied to the proceeds.”
Id. at 1363 (alteration in original).

But while we agreed with the Commissioner’s interpretation of the proceeds regulation in TOT, we expressly did not consider the validity of the regulation under the APA, as the taxpayers there did not make such a challenge. Id. at 1362 n.13; see also PBBM-Rose Hill, 900 F.3d at 209 n.8 (declining to address a challenge to § 1.170A-14(g)(6)(ii)’s validity as the tax- payer failed to make the argument below).

Unlike TOT, the Hewitts assert that Treasury failed to com- ply with the procedural requirements of the APA in promulgating Treas. Reg. § 1.170A-14(g)(6)(ii). Specifically, the Hewitts contend that the administrative record demonstrates that comments raising concerns with § 1.170A-14(g)(6)(ii) were filed during the rulemaking process, that those comments were “significant” such that they required a response from Treasury, and that Treasury failed to adequately respond to those significant comments in the final regulation’s “basis and purpose” statement, in violation of the APA’s procedural requirements.

As such, the Hewitts contend that § 1.170A-14(g)(6)(ii), as interpreted by the Commissioner to prohibit the subtraction of the value of post-donation improvements to the easement property in the proceeds allocated to the donee in the event of judicial extinguishment, is arbitrary and capricious un- der the APA.

As previously noted, Treasury issued a notice of proposed rulemaking following Congress’s enaction of § 170(h) for “proposed regulations relating to contributions of partial interests in property for conservation purposes” and to clarify “the statutory rules in effect under [the Tax Treatment Extension Act of 1980].” 48 Fed. Reg. at 22,940. One of the subparagraphs in the proposed regulations ultimately became § 1.170A-14(g)(6). Id. at 22,946–47.

Of relevance here, the preamble to the proposed rulemaking explained that section 6 of that act “made extensive changes in the existing statute, eliminated the expiration date, and incorporated the relevant language into a new section 170(h).” Id. at 22,940. It further provided that “[t]he regulations reflect[ed] the major policy decisions made by the Congress and expressed in committee reports.” Id.

And Treasury stated that it would consider any writ- ten comments submitted before adopting the proposed regulations. Id. at 22,941.

Following Treasury’s request for public comments, it re- ceived more than 700 pages of commentary from ninety organiza- tions and individuals. Of the ninety commenters, thirteen offered comments as to the proposed extinguishment proceeds regulation. Oakbrook, 154 T.C. at 186.

The Hewitts contend that seven of those thirteen commenters “expressed concern that allocation of post-extinguishment proceeds under the proposed Proceeds Regulation was unworkable, did not reflect the reality of the donee’s in- terest, or could result in an unfair loss to the property owner and a corresponding windfall for the donee.”

Turning to the most detailed comment, the New York Landmarks Conservancy (“NYLC”) urged Treasury to delete the proposed proceeds regulation because it contained pervasive “prob- lems of policy and practical application.” NYLC stated that while Congress enacted the statute “to encourage the protection of [the]
. . . environment through the donation of conservation restrictions,” the proposed regulation “would thwart the purpose of the statute by deterring prospective donors,” as those donors would “likely . . . be discouraged from making a donation which may tie themselves or future owners to share proceeds of a sale or exchange with the charitable organization [donee] under circumstances which cannot possibly be foreseen.”

NYLC explained that prospective donors frequently were concerned about “perpetuity” issues, which were “mollified upon the donor’s recognition that common law permits the extinguishment of restrictions when they no longer serve the original intended purposes.”

But NYLC believed “[t]he prospect of extinguishment would no longer mol- lify these fears if a split of proceeds under unknown circumstances would be required.” As such, and because “the possibility of extin- guishment is relatively remote,” NYLC stated it was “unnecessary” for Treasury “to provide for allocation of proceeds after extinguishment.”

NYLC also specifically commented on the issue of whether the value of post-donation improvements to the easement property should be included or excluded from the extinguishment pro- ceeds formula contained in the regulation. NYLC stated that the regulation’s structure “contemplates that a ratio of value of the conservation restriction to value of the fee will be fixed at the time of the donation and will remain in effect forever thereafter.”

But NYLC asserted that the formula “fail[ed] to take into account that improvements may be made thereafter by the owner which should properly alter the ratio.”

In support of its concern, NYLC pre- sented a mathematical example, which was based on a fact pattern in the proposed regulations, see 48 Fed. Reg. at 22,945, to show that requiring the prospective donor to turn over extinguishment proceeds attributable to post-donation improvements to the donee “would obviously be undesirable to the prospective donor and would constitute a windfall to the donee organization.” See Oak- brook, 154 T.C. at 224 (Toro, J., concurring in result).

Thus, “in light of the potential inequities,” NYLC recommended “that the proposed proceeds formula be revised to prevent such inequities should the . . . Treasury decide to retain the provision” but “strongly recommend[ed] deletion of the entire extinguishment provision.” (emphasis added).

While NYLC offered the most extensive comments on the proposed proceeds regulation—including being the only com- menter that addressed the allocation of the value of proceeds at- tributable to future improvements by the donor—other commenters expressed criticism or urged caution as to the proposed extin- guishment regulations.

The Landmarks Preservation Council of Illinois, for example, “urge[d] caution in the treatment of the concept of ‘extinguishment’ in the regulations,” as “[t]he discussion in the regulations of the conditions under which that binding agreement may be abrogated lends an undesirable air of legitimacy to the concept of ‘extinguishment.’”

It also warned that the regulations could “create a potential disincentive to the donation of easements,” noting that “[t]he obligation imposed on the donor or sub- sequent owner to pay to the donee organization an amount at least equal to the original proportionate value of the easement” could place “the donor at risk for an amount of money” —e.g., payments to a third party lender— “for which he may not be compensated by the disposition of the proceeds of sale.”

The Land Trust Exchange stated that the proposed proceeds regulation “may result in donors or donees having to pay real estate transfer taxes” and that it was “unnecessary.”

The Trust for Public Land stated that it had “serious doubts whether the provision . . . could be enforced against anyone other than the original donor of the easement” and that “the tax benefit rule is a satisfactory means of meeting any concern the IRS may have that a donor might receive the double benefit of an easement deduction followed by later recovery of the value donated.”

The Brandywine Conservancy cautioned that the regulation “may unnecessarily restrict the amount, payable to the holder of an easement, if changes in surrounding territory have made the easement proportionately more valuable than the retained interest” and that “[t]he donee should be entitled to proceeds equal to the greater of its original proportionate value or its proportionate value at the time of the extinguishment.”

And the Nature Conservancy and the Maine Coast Heritage Trust both mentioned that the regulation should be “clear” that the original proportionate value is the minimum that a donee will receive in extinguishment proceeds.4

4 As to the comments from the Brandywine Conservancy, the Nature Conservancy, and the Maine Coast Heritage Trust, the Tax Court in Oakbrook presumed that Treasury responded to those organizations’ comments by changing the language of the regulation from the donee of the easement being vested with a property right having a fair market value “that is a minimum ascertainable proportion of the fair market value to the entire property” to a fair market value “that is at least equal to the proportionate value that the perpetual conservation restriction at the time of the gift, bears to the value of the property as a whole at that time.” 154 T.C. at 188 (first quoting 48 Fed. Reg. at 22,946, then quoting § 1.170A-14(g)(6)(ii)).

But Treasury did not specifically explain in the final regulation that its change in the language was in response to those organizations’ comments.

After a public hearing, Treasury adopted the proposed regulations with revisions. 51 Fed. Reg. at 1496. In the preamble to the final rulemaking, Treasury stated that “[t]hese regulations provide necessary guidance to the public for compliance with the law and affect donors and donees of qualified conservation contributions” and that it had “consider[ed] all comments regarding the proposed amendments.” Id.

In the subsequent “Summary of Comments” section, however, Treasury did not discuss or respond to the comments made by NYLC or the other six commenters concerning the extinguishment proceeds regulation.

See id. at 1497– 98; Oakbrook, 154 T.C. at 188 (“The ‘judicial extinguishment’ provision is not among the amendments specifically addressed in the ‘Summary of Comments.’”).

And Treasury stated that “[a]lthough a notice of proposed rulemaking which solicited public comments was issued, the Internal Revenue Service concluded when the notice was issued that the regulations are interpretative and that the notice and public comment procedure requirement of 5 U.S.C. [§] 553 [of the APA] did not apply.” 51 Fed. Reg. at 1498.

The Hewitts assert that these seven comments—in particular, NYLC’s comment—were significant such that they warranted a response from Treasury in promulgating the final extinguish- ment proceeds regulation.

In response, the Commissioner asserts that none of the thirteen comments were significant to require a response from Treasury because they did not raise any point casting doubt on the regulation’s reasonableness.

Thus, the issue before us is whether Treasury’s failure to re- spond to NYLC’s and the other commenters’ concerns about the extinguishment proceeds regulation was in violation of the proce- dural requirements of the APA.

Phrased differently, we must determine whether § 1.170A-14(g)(6)(ii), as interpreted by the Commissioner to prohibit the subtraction of any amount of proceeds attributable to post-donation improvements to the easement property in the event of judicial extinguishment, is procedurally valid under the APA where:

(1) one commenter—NYLC—made specific comments raising the improvements issue as it relates to extinguishment proceeds and recommended deletion of the provision;

(2) six other organizations submitted comments criticizing or urging caution as to the regulation;

and

(3) Treasury failed to specifically respond to any of those comments, instead simply stating that it had considered “all comments.”

Below, the Tax Court found that the regulation was procedurally valid under the APA, relying on its decision in Oakbrook.

In Oakbrook, the Tax Court considered the comments Treasury received as to “the fact that the ‘proportionate share’ formula [in § 1.170A-14(g)(6)(ii)] does not account for the possibility of donor improvements.” 154 T.C. at 192.

The Tax Court concluded that the proceeds regulation as to the post-donation improvements was procedurally valid under the APA. Id. at 195.

The court first noted that it had found the statement “[a]fter consideration of all com- ments,” coupled with an administrative record, to be “sufficient to find that Treasury had considered the relevant matter presented to it.” Id. at 191–92 (alteration in original) (citing Wing v. Comm’r, 81 T.C. 17, 31–32 (1983)).

The Tax Court stated that “[t]he APA ‘has never been interpreted to require the agency to respond to every comment, or to analy[z]e every issue or alternative raised by the comments, no matter how insubstantial.’” Id. at 192 (quoting Thompson v. Clark, 741 F.2d 401, 408 (D.C. Cir. 1984)).

The Tax Court further noted that “only one of the 90 commenters”— NYLC—“mentioned donor improvements, and it devoted exactly one paragraph to this subject.” Id.

The Tax Court stated that NYLC’s point that donors “are likely to be discouraged from making a donation” was “a supposition that Treasury may reasonably have discounted.” Id.

And it stated that, as to the improvements issue, “[t]he administrative record reflects that no substantive alter- natives to the final rules were presented for Treasury’s consideration.” Id. at 193 (alteration in original) (quoting SIH Partners LLLP v. Comm’r, 150 T.C. 28, 44 (2018)).

The Tax Court found that “NYLC offered no suggestion about how the subject of donor improvements might be handled; it simply recommended ‘deletion of the entire extinguishment provision.’” Id.

As to the final regulations’ preamble, the Tax Court rejected the argument that Treasury did not comply with the APA because the preamble “did not discuss the ‘basis and purpose’ of the judicial extinguishment provision specifically.” Id. at 193–94.

The court explained that “[e]ven where a regulation contains no statement of basis and purpose whatsoever, it may be upheld ‘where the basis and purpose . . . [are] considered obvious.’” Id. at 194 (quoting Cal- Almond, Inc. v. U.S. Dep’t of Agric., 14 F.3d 429, 443 (9th Cir. 1993)).

The court noted the final regulations’ preamble “explains that they were being promulgated to ‘provide necessary guidance to the public for compliance with the law,’ as recently amended by Congress, ‘relating to contributions of partial interests in property for conservation purposes,’” with the proposed regulations’ preamble stating, “the requirement that conservation easements ‘be perpetual in order to qualify for a deduction.’” Id. (first quoting 51 Fed. Reg. at 1496, then quoting 48 Fed. Reg. at 22,940).

And it found that “[t]he purpose of the ‘judicial extinguishment’ rule is plain on its face—to provide a mechanism to ensure that the conservation purpose can be deemed ‘protected in perpetuity’ not-withstanding the possibility that the easement might later be extinguished.” Id. (quoting § 1.170A-14(g)(6)(i)).

Finally, the Tax Court minimized the importance of the extinguishment proceeds provision in the context of the final regulations—“one subparagraph of a regulation project consisting of 10 paragraphs, 23 subparagraphs, 30 subdivisions, and 21 examples”—as the APA did not “mandate that an agency explain the basis and purpose of each individual component of a regulation separately.” Id.

Thus, the court concluded that “[t]he broad statements of purpose contained in the preambles to the final and proposed regulations, coupled with obvious inferences drawn from the regulations themselves, [were] more than adequate.” Id.

The Oakbrook decision was not unanimous. Judge Toro, in a concurring in result opinion, found that, if the proceeds regulation was read in the way proposed by the Commissioner, i.e., to bar subtraction of the value of post-donation improvements from the extinguishment proceeds, it failed to comply with the APA’s procedural requirements. See id. at 216 (Toro, J., concurring).

Judge Toro explained that the “Treasury received more than 700 pages of comments” during the comment period and that, in the final regulations, Treasury responded to those comments and other administrative matters in just two of the twelve pages—“six columns in the Federal Register”—consisting of the final regulations. Id. at 221.

In his view, it was likely that Treasury “was simply following its historical position that the APA’s procedural requirements did not apply to these types of regulations,” noting that the final regulations referenced Treasury’s belief that they did not require notice and comment and that this belief was mistaken. Id. at 222.

Judge Toro then found that the “Treasury failed to ‘respond to “significant points” and consider “all relevant factors” raised by the public comments.’” Id. at 223 (quoting Carlson v. Postal Regul. Comm’n, 938 F.3d 337, 334 (D.C. Cir. 2019)).

Pointing specifically to NYLC’s comment, Judge Toro explained that NYLC “made clear that, in its view, it would be inappropriate to condition the availability of the deduction for a conservation easement on the donor’s agreement to turn over to the donee proceeds attributable to improvements on the real property interest that the Code permitted the donor to retain.” Id. at 224.

He further noted that NYLC:

(1) “expressly tied its comments” to a specific rule and a specific fact pattern in the proposed regulations;

(2) explained that the proposed proceeds regulation would “thwart the purpose of the statute,” which NYLC stated was to “encourage the protection of our significant natural and built environment through the donation of conservation restrictions”;

and

(3) recommended the deletion of the provision “or, at the very least, ‘be revised to prevent . . . [the] inequities’ it had identified.” Id. (alterations in original).

As such, Judge Toro explained that the administrative record left “no doubt” that NYLC’s comment “‘can be thought to challenge a fundamental premise’ underlying the proposed agency decision.” Id. (quoting Carlson, 938 F.3d at 344).

The proposed regulations’ preamble explained that they reflected Congress’s “major policy decisions,” and NYLC “in effect countered that the proposed rule on future donor improvements was contrary to those policy decisions, would lead to inequitable results that were inconsistent with the statute, and would deter future contributions.” Id. at 225 (quoting 48 Fed. Reg. at 22,940).

In other words, Judge Toro found that NYLC “offered comments that, ‘if adopted, would require a change in an agency’s proposed rule,’” and that “were both ‘rele- vant and significant,’ [as to] require[e] a response.” Id. (first quoting Home Box Office, Inc. v. FCC, 567 F.2d 9, 35 n.58 (D.C. Cir. 1977), then quoting Grand Canyon Air Tour Coal. v. FAA, 154 F.3d 455, 468 (D.C. Cir. 1998)).

Because Treasury did not provide a response to NYLC’s comments, Judge Toro concluded that its actions failed to provide “an explanation [that] is clear enough that its ‘path may reasonably be discerned’” or “provide any insight on ‘what major issues of policy were ventilated . . . and why the agency reacted to them as it did’ on this point.” Id. at 225–26 (alterations in original) (first quot- ing Encino Motorcars, 579 U.S. at 221, then quoting Carlson, 938 F.3d at 344).

And it was “not the role of the courts to speculate on reasons that might have supported” Treasury’s decision. Id. at 226 (quoting Encino Motorcars, 579 U.S. at 224).

Judge Toro also explained that the Oakbrook majority’s reasoning as to the issue was flawed for several reasons. He explained that courts were “not re- quired to ‘take the agency’s word that it considered all relevant matters,’” as the majority asserted. Id. at 226–27 (quoting PPG In- dus., Inc. v. Costle, 630 F.2d 462, 466 (6th Cir. 1980)).

He further noted that “[a] ‘relevant and significant comment’ requires a re- sponse, regardless of whether the point is made by many, a few, or even a single commenter,” and “a comment does not lose its significance because it is presented succinctly.” Id. at 227 (quoting Carlson, 938 F.3d at 347). And, if the scope of the project “was too large to permit an appropriate response to all ‘relevant and signifi- cant comments,’ then Treasury could have broken the project down into smaller parts.” Id.

In his dissenting opinion, Judge Holmes reached a similar conclusion to Judge Toro on the regulation’s procedural invalidity under the APA.

He concluded that comments from NYLC and other organizations “were significant and [were] entitled to an agency response.” See id. at 245 (Holmes, J., dissenting).

Judge Holmes explained that Treasury’s statement that it considered “all comments” was not sufficient under the APA, noting that the Federal Circuit, in Dominion Resources, Inc. v. United States, 681 F.3d 1313, 1319 (Fed. Cir. 2012), found a Treasury regulation procedurally invalid even though Treasury explicitly stated that “it rejected the commentators’ recommendation and brief explanation in general terms of how one of the provisions worked.”5 Oakbrook, 154 T.C. at 245–46 (Holmes, J., dissenting).

He further explained that the final regulations at issue provided even less explanation than those in Dominion Resources, as Treasury failed to “even acknowledge the relevant comments or expressly state its disagreement with them” such that there was not even “a minimal level of analysis.” Id. at 248 (quoting Encino Motorcars, 579 U.S. at 2120).

After careful consideration of the agency record before us, the several opinions in Oakbrook and precedent from the Supreme Court, and this Court’s interpretation of procedural validity under the APA, we conclude that § 1.170A-14(g)(6)(ii)—as read by the Commissioner to prohibit subtracting the value of post-donation improvements to the easement property from the proceeds allocated to the donor and donee in the event of judicial extinguishment—is arbitrary and capricious under the APA for failing to com- ply with the APA’s procedural requirements and is thus invalid. See §§ 553(c), 706(2)(A).

5 Specifically, the preamble to the regulation at issue in Dominion Resources provided that “commentators suggested that the regulations provide that property is taken out of service only if the property is taken out of service for depreciation purposes” and that “[t]he final regulations do not adopt the suggestion concerning when property should be considered taken out of service.”

See Dominion Res., Inc. v. United States, 97 Fed. Cl. 239, 256 (2011) (quoting 59 Fed. Reg. 67,187, 67,192–93 (Dec. 29, 1994)), rev’d, 681 F.3d 1313 (Fed. Cir. 2012).

Our decision in Lloyd Noland is instructive.

In that case, the plaintiffs challenged a malpractice insurance rule related to Medicare reimbursements that was promulgated by the Secretary of Health and Human Services. 762 F.2d at 1563.

In addressing the plaintiffs’ challenge, we concluded that the malpractice insurance rule was procedurally inadequate under the APA; specifically, it violated § 553(c), which we explained requires an agency “to incorporate into a new rule a concise general statement of its basis and purpose.” Id. at 1566.

The Secretary had failed to respond to com- ments that a study the agency relied on, which contained limited data that the authors cautioned against generalizing, was unreliable. Id.

While the Secretary asserted that the objections were ir- relevant, we concluded otherwise, such that those comments formed the basis of our holding that the malpractice insurance rule was arbitrary. Id. at 1566, 1568.

We also rejected the Secretary’s argument that she addressed certain hospitals’ comments based on the rule’s preamble, stating that “

[w]e are aware that insurance companies generally do not determine insurance rates for malpractice insurance based upon the financial status of the patients,” and that “premiums are ‘incurred primarily for the benefit of the total overall patient population and for the protection of facility assets.’” Id. at 1566.

While the Secretary suggested “that drawing a conclusion contrary to the comments does not mean they were not con- sidered,” we explained that “[b]asis and purpose statements must enable the reviewing court to see the objections and why the agency reacted to them as it did” and that agencies should rebut relevant comments. Id. at 1566–67.

Because the Secretary’s response to the rule’s comments were inadequate, we affirmed the district courts’ invalidation of the rule. Id. at 1567, 1569; cf. Encino Motorcars, 579 U.S. at 2126–27 (“The [agency] said that, in reach- ing its decision, it had ‘carefully considered all of the comments, analyses, and arguments made for and against the proposed changes.’

But when it came to explaining the ‘good reasons for the new policy,’ the [agency] said almost nothing [T]he[agency’s] conclusory statements do not suffice to explain its decision.” (first quoting 76 Fed. Reg. 18,832, 18,832 (Apr. 5, 2011), then quoting FCC v. Fox Television Stations, Inc., 556 U.S. 502, 515 (2009))).

The Commissioner argues that Lloyd Noland should be dis- tinguished because, in that case, we reviewed “a factual, evidence- based rule,” while the extinguishment proceeds regulation is based on Treasury’s interpretation of § 170(h)(5)’s statutory protected-in-perpetuity requirement.

But, in Lloyd Noland, we did not hold that the requirement that “[b]asis and purpose statements must enable the reviewing court to see the objections and why the agency reacted to them as it did”—including responding to significant comments—only applies when there is “erroneous data or fact finding” underlying the proposed regulation, as the Commissioner suggests, and we decline to do so here.

As in Lloyd Noland, in promulgating the final extinguish- ment proceeds regulation, Treasury failed to respond to the rele- vant and significant comment from NYLC as to the post-donation improvements issue.

In the proposed regulations’ preamble, Treasury stated that the “regulations reflect the major policy deci- sions made by the Congress and expressed in the[] committee re- ports” to the Tax Treatment Extension Act of 1980. 48 Fed. Reg. at 22,940.

One of the policy decisions reflected in those “committee reports,” expressly referenced by Treasury, provided that “the preservation of our country’s natural resources and cultural heritage is important,” that “conservation easements now play an important role in preservation efforts,” and that “provisions allowing deductions for conservation easements should be directed at the preservation of unique or otherwise significant land areas or structures.” S. Rep. No. 96-1007, at 9 (1980).

NYLC’s comment recognized as much, stating that “[t]he statute was enacted by Congress to encourage the protection of our significant natural and built en- vironment through the donation of conservation restrictions.”

As to the proposed regulation overall, NYLC stated that the proposed regulation “would thwart the purpose of the statute by deterring prospective donors” concerned about tying themselves to share proceeds of a sale with the donee “under circumstances which cannot possibly be foreseen.”

Additionally, NYLC specifi- cally commented that the regulation’s proceeds formula:
(1) “contemplates that a ratio of value of the conservation restriction to value of the fee will be fixed at the time of the donation and will remain in effect forever thereafter”;

and

(2) “fail[ed] to take into account that improvements may be made thereafter by the owner which should properly alter the ratio.”

And NYLC warned that this outcome “would obviously be undesirable to the prospective donor and would constitute a windfall to the donee organization” and “strongly recommend[ed] deletion of the entire extinguish- ment provision,” or at least revised “to prevent such inequities.”

In other words, NYLC challenged a fundamental premise underlying Treasury’s proposed regulations by “in effect counter[ing] that the proposed rule on future donor improvements was contrary to those policy decisions [mentioned in the proposed regulations], would lead to inequitable results that were inconsistent with the statute, and would deter future contributions.”

See Oakbrook, 154 T.C. at 225 (Toro, J., concurring).

Simply put, NYLC’s comment was significant and required a response by Treasury to satisfy the APA’s procedural requirements.

And the fact that Treasury stated that it had considered “all comments,” without more discussion, does not change our analysis, as it does not “enable [us] to see [NYLC’s] objections and why [Treasury] reacted to them as it did.” Lloyd Noland, 762 F.2d at 1566.

But the Commissioner contends that the APA only required Treasury “to respond to significant comments that cast doubt on the reasonableness of the rule” it adopted.

See Hussion, 950 F.2d at 1554 (quoting Balt. Gas, 817 F.2d at 116);

see also Vt. Yankee Nuclear Power Corp. v. Nat. Res. Def. Council, Inc., 435 U.S. 519, 553 (1978)

(“[C]omments must be significant enough to step over a threshold requirement of materiality before any lack of agency response or consideration becomes of concern.

The comment cannot merely state that a particular mistake was made . . . ; it must show why the mistake was of possible significance.” (alteration in original) (quoting Portland Cement Ass’n v. Ruckelhaus, 486 F.2d 375, 394 (D.C. Cir. 1973))).

And the Commissioner claims that Treasury’s “primary (if not exclusive) consideration in crafting the proceeds regulation was the meaning of the statutory perpetuity requirement” and that, as such, NYLC was required “to explain why the rule would not further the goal of ensuring that the con- servation purpose embodied in the perpetual use restriction would be protected in perpetuity as required by the statute.”

The Commissioner argues that NYLC’s comment as to post-donation im- provements did not address this consideration, and therefore was not a significant comment, because the comment was limited to

(1) the “observation that the regulation would require the donee to receive a proportionate amount of the full proceeds,” including any proceeds attributable to the donor’s improvements,

and

(2) NYLC’s belief that this situation would be “‘undesirable’ to the do- nor” and would result in a “windfall” for the donee.

While we agree with the Commissioner that Treasury was only required to respond to significant comments to comply with the APA’s procedural requirements, we disagree with the Commissioner’s argument that NYLC’s comment was not significant.

The Commissioner’s claim that the “primary (if not exclusive)” purpose in crafting the proceeds regulation was only to interpret § 170(h)(5)’s “protected-in-perpetuity” requirement is inconsistent with the committee reports Treasury purportedly relied on.

As identified by NYLC, one of the purported purposes set forth in the committee reports, was to allow deductions for the donation of conservation easements to encourage donation for such easements. See S. Rep. No. 96-1007, at 9.

And NYLC raised the post- donation improvements issue, as to extinguishment proceeds, and warned that its exclusion in the regulatory scheme would discourage prospective donors from donating conservation easements.

In other words, NYLC’s comment was specific to, and casted doubt on, the reasonableness of the proceeds regulation in light of one of Congress’s committee reports which, according to Treasury, was “reflected” in the final regulations. 48 Fed. Reg. at 22,940 (“The regulations reflect the major policy decisions made by the Con- gress and expressed in the[] committee reports.”).

Furthermore, the final regulations did not limit the purpose of the proceeds regulation in the way the Commissioner suggests.

We thus decline to classify NYLC’s comment as insignificant based on the Commissioner’s interpretation of Treasury’s primary purpose in crafting the proceeds regulation.6

6 The Commissioner also points to Treasury’s statements, in discussing dona- tions of mortgaged property in the final regulations, that § 170(h)(5) “provides that the conservation purposes of the donation must be protected in perpetuity” and that “[i]n response to comments received, . . . the mortgagee must subordinate its rights under the mortgage to the right of the qualified organization to enforce the conservation purposes of the gift in perpetuity.” 51 Fed. Reg. at 1498.

The Commissioner argues that these statements show that Treasury viewed “the protected-in-perpetuity requirement as requiring express protection of the full value of the donee’s interest in order to adequately protect the easement’s conservation purposes,” which is “the approach taken

See State Farm, 463 U.S. at 43, 50 (“‘[W]e may not supply a reasoned basis for the agency’s action that the agency itself has not given.’ [C]ourts may not accept appellate counsel’s post hoc rationalizations for agency action.” (quoting
Chenery, 332 U.S. at 196)).

The Commissioner additionally asserts that Treasury’s revi- sions to the proposed proceeds regulation in the final regulation support Treasury’s representation that it considered “all com- ments” in the final regulations’ preamble.

But, as the Commissioner concedes, the revisions were simply “clarifications” in response to other comments “expressing uncertainty” about the regulation’s meaning “rather than substantive changes.”

Indeed, the proceeds regulation was revised from vesting the donee with a property right having a fair market value “that is a minimum ascertainable proportion of the fair market value to the entire property” to a fair market value “that is at least equal to the proportionate value that the perpetual conservation restriction at the time of the gift, bears to the value of the property as a whole at that time.”

See Oakbrook, 154 T.C. at 188 (comparing the proposed and final proceeds regulations).

in the proceeds regulation.”

But Treasury’s discussion of donations of mortgaged property in the final regulations does not reference the proceeds regulation nor give any indication that Treasury considered the post-donation improvements issue raised by NYLC.

We thus find this argument, which speculates as to the reason of Treasury’s actions, without merit.

See State Farm, 463 U.S. at 43.

But this revision does not provide any indication that Treasury was responding to NYLC’s significant comment about the post-donation improvements issue.

See Lloyd Noland, 762 F.2d at 1567; Hussion, 950 F.2d at 1554. We therefore reject this argument.

IV. CONCLUSION

Because Treasury, in promulgating the extinguishment proceeds regulation, failed to respond to NYLC’s significant comment concerning the post-donation improvements issue as to proceeds, it violated the APA’s procedural requirements.

See Lloyd Noland, 762 F.2d at 1566; see also Oakbrook, 154 T.C. at 225–27 (Toro, J., concurring).

We thus conclude that the Commissioner’s interpretation of § 1.170A-14(g)(6)(ii), to disallow the subtraction of the value of post-donation improvements to the easement property in the extinguishment proceeds allocated to the done, is arbitrary and capricious and therefore invalid under the APA’s procedural requirements.

Accordingly, we reverse the Tax Court’s order disallowing the Hewitts’ carryover charitable deductions as to the donation of the conservation easement and remand for further proceedings.

REVERSED AND REMANDED.

Conservation Easement Deed Fails Perpetuity Requirement

David F. Hewitt et ux. v. Commissioner;
No. 23809-17; T.C. Memo. 2020-89

DAVID F. HEWITT AND TAMMY K. HEWITT, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

UNITED STATES TAX COURT

Filed June 17, 2020

Michelle A. Levin, David M. Wooldridge, Ronald A. Levitt, and Gregory P. Rhodes, for petitioners.

Edwin B. Cleverdon, Jerrika C. Anderson, and Horace Crump, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

GOEKE, Judge:

In 2012 petitioner David Hewitt granted a conservation easement to a qualified organization under section 170(h)(3) on rural farm land [*2] that has been in his family for nearly 60 years.1

Growing up, he worked on the farm with his father, and he has lived on the property throughout his life.

Petitioners claimed a charitable contribution deduction of approximately $2.8 million for the easement donation on their joint 2012 tax return and carried over portions of the contribution for 2013 and 2014.

Respondent has not challenged the deduction claimed on the 2012 return but has disallowed the carryover deductions for 2013 and 2014.

The primary issue for decision is whether petitioners are entitled to carryover of the charitable contribution deduction for the donation of the conservation easement; we hold they are not.2

The easement does not protect the conservation purposes of the contribution in perpetuity as required by section 170(h)(5) because the deed would not allocate to the donee a share of the proceeds in the event the property is sold following a judicial extinguishment of the easement, in violation of section 1.170A-14(g)(6)(ii), Income Tax Regs.3

[*3] Respondent determined 40% accuracy-related penalties against petitioners for gross valuation misstatements under section 6662(e) and (h) and 20% accuracy-related penalties for negligence or disregard of rules and regulations or substantial understatements of income tax under section 6662(a) and (b)(1) and (2) for 2013 and 2014. We find petitioners not liable for the penalties.

FINDINGS OF FACT

Petitioners resided in Alabama when they filed their petition. Mr. Hewitt was the sole owner of the easement property but filed joint returns with his wife for the years at issue.

Mr. Hewitt’s father moved to Alabama in the early 1950s and acquired land to raise cattle, farm, and harvest timber.4 When Mr. Hewitt was [*4] a child, his family lived on the land, and he grew up helping his father on the farm and continued to work on the farm while in college.

In the early 1990s Mr. Hewitt’s father transferred a large portion of his land to Mr. Hewitt’s sister.

In 1997 and 1998 the sister transferred a portion of the land, 232 acres, to Mr. Hewitt as a gift. In 2001 Mr. Hewitt purchased 25 more acres of adjacent land. He bought out the interests of two unrelated persons who co-owned a 400-acre parcel with his father.

He granted the conservation easement on a portion of the land he acquired in these transfers. In 2012 Mr. Hewitt and his sister owned approximately 1,325 acres in Randolph and Cleburne Counties, Alabama, near Alabama’s border with Georgia (Hewitt property).

The Hewitt property consisted of pastureland along a county road and wooded areas with steep topography, rough terrain, and limited road access. It is approximately a one-hour drive from Atlanta, Georgia, and a little more than one [*5] hour from Birmingham, Alabama. There were no zoning ordinances on the property when Mr. Hewitt granted the easement.

In 2012 the father’s health had begun to decline.

Mr. Hewitt saw that his father continued to enjoy the land as his health failed and he had difficulty communicating. Mr. Hewitt decided that he wanted to preserve the land because of his father. He also wanted his children and future generations to have the same opportunity that he had had to enjoy and live on the land.

He decided to place a conservation easement on the property.

A business acquaintance referred him to the accounting firm Large & Gilbert, P.C. (Large & Gilbert), because of its experience with the donation of conservation easements. Mr. Hewitt met with members of Large & Gilbert. He believed that Large & Gilbert was well respected in the tax community.

Large & Gilbert recommended that Mr. Hewitt grant the easement to Atlantic Coast Conservancy, Inc. (Conservancy), a qualified organization under section 170(h)(3). Mr. Hewitt met with Robert Keller, a conservation biologist and the Conservancy’s founder and chief executive officer, to discuss the possible donation of the easement.

Dr. Keller visited the Hewitt property to gather information about it. The Conservancy prepared baseline reports on the easement’s conservation goals.

[*6]

Mr. Hewitt decided to grant an easement on 257 acres of his property that contained pastureland and was accessible from paved roadways. He chose this area because he believed that it was the most likely to be developed and he wanted to protect it. He understood that development of the wooded, hilly area would be costly and believed it was less necessary to protect that portion of the Hewitt property.

In his opinion the pastureland was significantly more valuable than the wooded area. He intended to protect the easement property in perpetuity.

On December 28, 2012, Mr. Hewitt granted a conservation easement over 257 acres to Pelican Coast Conservancy, Inc., a wholly owned subsidiary of the Conservancy (collectively, Conservancy), through a deed of conservation easement.

According to the deed the easement’s purposes are to preserve and protect the scenic enjoyment of the land, agricultural land and production, and a creek within the Tallapoosa Basin watershed.

The deed states that the easement will maintain the amount and diversity of natural habitats, protect scenic views from the roads, and restrict the construction of buildings and other structures, the removal or destruction of native vegetation, changes to the habitat, and the exploration of minerals, oil, gas, or other materials.

It prohibits Mr. Hewitt from undertaking any activity that is inconsistent with the easement’s purposes and grants to the Conservancy the right to prevent any activity or use of the easement [*7] property that is inconsistent with the easement’s purposes or adversely affects its conservation values.

Notwithstanding the above restrictions, Mr. Hewitt reserved the right to locate five one-acre homesites with one dwelling on each homesite.

He intended the homesites to be used by his children if they wanted to live on the family property some day.

The deed does not designate the locations of the homesites and allows them to be located on a substantial portion of the 257-acre easement property.

The deed requires Mr. Hewitt to provide written notice to the Conservancy that he intends to exercise his right to designate a homesite.

The notice must describe the chosen location “in sufficient detail to permit [the] Conservancy to make an informed judgment as to its consistency with the purpose of this Easement”.

The Conservancy has the right to grant or withhold its approval within 60 days of receiving Mr. Hewitt’s written notice. It may withhold approval only if it reasonably determines that the proposed location is inconsistent with or impairs the easement’s purposes.

Mr. Hewitt and the Conservancy must set the homesite location 60 days before construction begins.

The Conservancy believed that the delay in designating the homesite locations would give it flexibility to take into account the natural changes to the land from wildlife [*8] migration and topography over the time before the homes are constructed and would better protect the easement’s conservation purposes.

The deed provides for the allocation of proceeds from an involuntary extinguishment as follows:

[T]his Easement shall have at the time of Extinguishment a fair market value determined by multiplying the then fair market value of the Property unencumbered by the Easement (minus any increase in value after the date of this grant attributable to improvements) by the ratio of the value of the Easement at the time of this grant to the value of the Property, without deduction for the value of the Easement, at the time of this grant. * * * [T]he ratio of the value of the Easement to the value of the Property unencumbered by the Easement shall remain constant.

The Conservancy drafted the deed relying on published guidance from Land Trust Alliance, a national land trust organization. Large & Gilbert reviewed the deed and advised Mr. Hewitt that it complied with the requirements of the Code and the accompanying regulations.

Mr. Hewitt did not grant an easement over all the property that he owned, and he and his sister continued to own 1,070 acres unencumbered and contiguous with the easement property (contiguous property).

After granting the easement Mr. Hewitt continued to live on the land and use it for cattle ranching.

On their 2012 joint tax return petitioners claimed a charitable contribution deduction for the easement donation of $2,788,000. Their deduction for 2012 was [*9] limited to $57,738 by section 170(b)(1)(A).5

They timely filed their joint tax returns for 2013 and 2014 and claimed carryover deductions from the 2012 easement donation of $1,868,782 and $861,480, respectively. Large & Gilbert prepared petitioners’ 2012, 2013, and 2014 returns. Petitioners attached Form 8283, Noncash Charitable Contributions, to their 2012 return but did not report the basis in the easement property on the form.

Mr. Hewitt attempted to determine his basis in the easement property, which was primarily a carryover basis from his father. He asked his father how much he had paid for the property and tried to find the original purchase documents. He was unable to obtain any cost basis information.

He provided Large & Gilbert with the deeds for his sister’s gifts of the land.

Large & Gilbert advised Mr. Hewitt that he could attach a statement to Form 8283 stating that basis information was not available and the deduction would not be disallowed on this basis. Petitioners attached the following statement prepared by Large & Gilbert to Form 8283:

A declaration of the taxpayer’s basis in the property is not included because of the fact that the basis of the property remains to be determined with accuracy; in addition, the basis [is] not taken into [*10] consideration when computing the amount of the deduction. Furthermore, the taxpayer has a holding period in the property in excess of 12 months and the property otherwise qualifies as capital gains property.

Petitioners attached an appraisal of the easement prepared by Jim Clower. Large & Gilbert had recommended Mr. Clower. Mr. Hewitt understood that Mr. Clower was competent and experienced. Mr. Clower used a before and after valuation method and determined that the easement property had a value of $3,214,000 unencumbered by the easement (before value) and a value of $420,000 encumbered by the easement (after value).

He determined that the value of the contiguous property increased by $6,500 as a result of the easement (enhancement value). He concluded that the easement had a fair market value of $2,787,500, the difference between the before and after values less the enhancement value.

Mr. Hewitt reviewed the appraisal report and believed that the appraised value was reasonable and consistent with his own opinion of the land’s value. Subsequently, he purchased 79 acres of nearby wooded land with steep topography and limited public access comparable to the contiguous property for $1,582 per acre and a.72-acre parcel adjacent to the easement property and with topography comparable to the easement property for $12,000.

Mr. Clower did not testify at trial, and his appraisal was not received into evidence for purposes of its [*11] valuation. The parties stipulated that Mr. Clower’s appraisal was a qualified appraisal by a qualified appraiser.

Respondent did not issue a notice of deficiency for 2012 and did not challenge petitioners’ use of $57,738 of the easement deduction for that year.

Respondent issued a notice of deficiency for 2013 and 2014, disallowing the carryover deductions on the basis of a lack of substantiation and determining section 6662(h) 40% penalties for a gross valuation misstatement and, alternatively, section 6662(a) 20% penalties for negligence or disregard of the rules and regulations or substantial understatements of income tax.

Respondent has not asserted or argued that the easement had no value.

After 2012 Mr. Hewitt continued his land purchases. He granted conservation easements on some of the land with the help of Large & Gilbert. He held that land through pass-through entities that would grant the easements. Petitioners recognized gain of over $3.5 million on the sale of interests in these entities to investors who could claim shares in the easement deductions.

Respondent alleges that these entities overvalued the conservation easements for purposes of the deductions. Individuals from Large & Gilbert invested in the entities and claimed easement deductions.

[*12] Both parties presented expert witnesses. Petitioners presented three expert witnesses, Beau Bevis, Grant McCaleb, and Raymond Veal. Mr. Bevis opined the highest and best use of the easement property was the development of a mobile home community.

Mr. McCaleb provided estimates of construction costs for the mobile home community. Mr. Veal is a valuation expert and opined that the easement’s fair market value was approximately $3.1 million.

Respondent presented George Petkovich as a valuation expert. He opined the easement’s fair market value was $190,000.

OPINION

Section 170(a)(1) allows taxpayers to deduct charitable contributions made within the taxable year. If the taxpayer makes a charitable contribution of property other than money, the amount of the contribution is generally equal to the donated property’s fair market value at the time of the donation. Sec. 1.170A-1(c)(1), Income Tax Regs.

Generally, a taxpayer is not entitled to deduct the donation of “an interest in property which consists of less than the taxpayer’s entire interest in such property”. Sec. 170(f)(3)(A).

An exception is made for a contribution of a partial interest in property that constitutes a “qualified conservation contribution”. Id. subpara. (B)(iii). The exception applies where: (1) the taxpayer donates a “qualified real property interest”, (2) the donee is “a [*13] qualified organization”, and (3) the contribution is “exclusively for conservation purposes.” Id. subsec. (h)(1). The donation must satisfy all three requirements. Irby v. Commissioner, 139 T.C. 371, 379 (2012).

Respondent argues that the contribution is not exclusively for conservation purposes. A contribution is “exclusively for conservation purposes” if its conservation purpose is “protected in perpetuity”. Sec. 170(h)(5)(A) (perpetuity requirement).

I. Perpetuity Requirement

The regulations interpreting the perpetuity requirement recognize that “a subsequent unexpected change in the conditions surrounding the property * * * can make impossible or impractical the continued use of the property for conservation purposes”. Sec. 1.170A-14(g)(6)(i), Income Tax Regs.

In such an event the easement would not be protected in perpetuity. However, the regulation (extinguishment regulation) provides a means that the perpetuity requirement may be deemed satisfied:

“[T]he conservation purpose can nonetheless be treated as protected in perpetuity if the restrictions are extinguished by judicial proceeding” and the donee uses “all of the donee’s proceeds * * * from a subsequent sale or exchange of the property * * * in a manner consistent with the conservation purposes of the original contribution.” Id.

[*14] Section 1.170A-14(g)(6)(ii), Income Tax Regs. (proceeds regulation), determines the donee’s share of the extinguishment proceeds as follows:

[A]t the time of the gift the donor must agree that the donation of the perpetual conservation restriction gives rise to a property right, immediately vested in the donee organization, with a fair market value that is at least equal to the proportionate value that the perpetual conservation restriction at the time of the gift, bears to the value of the property as a whole at that time. * * * [T]hat proportionate value of the donee’s property rights shall remain constant. Accordingly, when a change in conditions give rise to the extinguishment of a perpetual conservation restriction * * * the donee organization, on a subsequent sale, exchange, or involuntary conversion of the subject property, must be entitled to a portion of the proceeds at least equal to that proportionate value of the perpetual conservation restriction, unless state law provides that the donor is entitled to the full proceeds * * *

The deed subtracts the value of posteasement improvements before determining the Conservancy’s share of the extinguishment proceeds and fails to allocate the extinguishment proceeds in accordance with the proceeds regulation.

See Coal Prop. Holdings, LLC v. Commissioner, 153 T.C. 126, 138-139 (2019);

see also PBBM-Rose Hill, Ltd. v. Commissioner, 900 F.3d 193, 208 (5th Cir. 2018).

The proceeds regulation does not permit the value of posteasement improvements to be subtracted from the proceeds before determining the donee’s share.

Coal Prop. Holdings, LLC v. Commissioner, 153 T.C. at 138-139 (holding that a deed that subtracts the value of posteasement improvements fails the section [*15] 150(h)(5) perpetuity requirement); Oakbrook Land Holdings, LLC v. Commissioner, T.C. Memo. 2020-54, at *40-*41.

The proceeds regulation is not satisfied, and the easement’s conservation purposes are not protected in perpetuity.

Accordingly, petitioners are not entitled to the carryover deductions for 2013 and 2014 for the easement donation.

A. Petitioners’ Interpretation of the Regulation

Petitioners argue that our caselaw misinterprets the proceeds regulation.6 In making this argument, they maintain that we should liberally construe the proceeds regulation in the favor of taxpayers. Generally, we consider deductions a matter of legislative grace and strictly construe their provision.

INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992).

However, courts have liberally construed statutory provisions for charitable contribution deductions in the taxpayer’s favor or have interpreted them under the ordinary standard of statutory construction because such deductions are an expression of public policy rather than legislative grace.

See Helvering v. Bliss, 293 U.S. 144, 150-151 (1934); PBBM-Rose Hill, Ltd. v. Commissioner, 900 F.3d at 200 (applying ordinary standard of construction [*16] and agreeing with our interpretation); Green v. United States, 880 F.3d 519, 529 (10th Cir. 2018); BC Ranch II, L.P. v. Commissioner, 867 F.3d 547, 553-554 (5th Cir. 2017), vacating and remanding Bosque Canyon Ranch, L.P. v. Commissioner, T.C. Memo. 2015-130; Weingarden v. Commissioner, 825 F.2d 1027, 1030 (6th Cir. 1987) (interpreting “redundant, ambiguous, and opaque nature” of the statute in the taxpayer’s favor), rev’g 86 T.C. 669 (1986); Rockefeller v. Commissioner, 676 F.2d 35, 42 (2d Cir. 1982) (“Courts have consistently reaffirmed that public policy demands a broad and flexible interpretation of statutes governing charitable contributions.”), aff’g 76 T.C. 178 (1981).

We are interpreting a regulatory provision, not a statute.

The statute is silent as to the effect of a possible extinguishment of the conservation easement. In the event of an extinguishment the perpetuity requirement could not be met even if we liberally construed section 170(h)(5). Section 1.170A-14(g)(6), Income Tax Regs., provides a means by which the perpetuity requirement is deemed satisfied.

Coal Prop. Holdings, LLC v. Commissioner, 153 T.C. at 135-136.

We are interpreting a regulation that creates “a single — and exceedingly narrow — exception” to the statutory requirements for a conservation easement deduction.

Belk v. Commissioner, 774 F.3d 221, 225 (4th Cir. 2014), aff’g T.C. Memo. [*17] 2013-154, supplementing 140 T.C. 1 (2013). For this reason we strictly construe section 1.170A-14(g)(6), Income Tax Regs.7 Carroll v. Commissioner, 146 T.C. 196, 212 (2016).

Turning to petitioners’ interpretation of the regulation, they argue that references to “the property” and “the subject property” in subdivisions (i) and (ii), respectively, of section 1.170A-14(g)(6), Income Tax Regs., mean the donee’s right to any extinguishment proceeds is limited to the proceeds from the property as it existed at the time of the easement’s grant, which necessarily excludes posteasement improvements.

They argue that the donee has a property right only to the proceeds attributable to “a defined parcel” at the easement’s grant, borrowing a phrase used by the Court of Appeals for the Fourth Circuit in Belk v. Commissioner, 774 F.3d 221, to interpret section 170(h)(2), which requires a use restriction to be placed on the donated property in perpetuity.

See Pine Mountain Pres., LLLP v. Commissioner, 151 T.C. 247, 275 (2018) (adopting the “defined parcel” terminology), appeal filed (11th Cir. May 7, 2019). To further support their interpretation, they cite the statement in the proceeds regulation that the donee is to receive a “property right, immediately vested” and argue that a donee [*18] cannot receive an immediately vested property right in improvements that do not exist.

The extinguishment regulation requires the donee to use its “proceeds * * * from a subsequent sale or exchange of the property * * * in a manner consistent with the conservation purposes of the original contribution.” Sec. 1.170A-14(g)(6)(i), Income Tax Regs. Petitioners argue that “the original contribution” limits the donee’s share of the proceeds to the value of the property as it existed when the easement was granted.

The extinguishment regulation does not support petitioners’ argument. It refers to the original contribution to determine for what purpose the donee must use its share of the proceeds. It does not define the donee’s share of the proceeds.

Likewise, petitioners misinterpret “the subject property” in the proceeds regulation. The proceeds regulation provides the manner to determine the donee’s share of the proceeds “on a subsequent sale, exchange, or involuntary conversion of the subject property”. Section 1.170A-14(g)(6), Income Tax Regs., addresses two separate events: a judicial extinguishment of the easement followed by the sale of the property.

The subject property refers to the property that is sold that generates the proceeds after the easement is extinguished. It does not refer to the property that existed at the outset. Nor does it define the donee’s property right to [*19] the proceeds. The donee’s property right is the right to the perpetual conservation restriction; this is the right that is immediately vested.

That property right is defined as the proportionate value without any limitation to the property that existed at the outset. The proceeds regulation does not limit the donee’s share to the value of the real property as it existed when the easement was granted. We adhere to our caselaw.

The value of posteasement improvements may not be subtracted out of the proceeds before determining the donee’s proportionate share. See Coal Prop. Holdings, LLC v. Commissioner, 153 T.C. 126; Oakbrook Land Holdings, LLC v. Commissioner, T.C. Memo. 2020-54.

Finally, there is no defined parcel requirement for section 170(h)(5). Section 170(h)(2) and (5) sets forth separate and distinct but not “wholly unrelated” requirements. Carter v. Commissioner, T.C. Memo. 2020-21, at *19; see Belk v. Commissioner, 140 T.C. at 12. Section 170(h)(2)(C) requires a perpetual restriction “on the use which may be made of the real property.” Quite simply, there cannot be a perpetual use restriction if the property to which the restriction applies is not defined at the outset.

Section 170(h)(5) requires that the contribution be exclusively for conservation purposes; it does not concern a defined parcel.

In fact the regulations recognize that the donor’s right to make changes to the property. Sec. 1.170A-14(g)(1), Income Tax Regs.

The donee’s [*20] immediately vested property right is to the perpetual restrictive covenant, not a defined parcel of land. For purposes of the extinguishment provisions, the subject property may change, but the donee’s property right to the extinguishment proceeds may not.

B. Deference to Private Letter Ruling

Petitioners argue that respondent has improperly changed his interpretation of the proceeds regulation from that in a 2008 private letter ruling, to the detriment of taxpayers without any notice.

Priv. Ltr. Rul. 200836014 (June 3, 2008).

We have refused to give any weight to the 2008 private letter ruling, finding the proceeds regulation unambiguous.

Coal Prop. Holdings, LLC v. Commissioner, 153 T.C. at 143-144; see also PBBM-Rose Hill, Ltd. v. Commissioner, 900 F.3d at 208 (finding the proceeds regulation unambiguous in its use of the word “proceeds” does not permit subtracting the value of posteasement improvements when determining the donee’s share).

Petitioners argue that this refusal was in error because private letter rulings can be “significant” where the Internal Revenue Service (IRS) later reverses its position.

Hanover Bank v. Commissioner, 369 U.S. 672, 686-687 (1962); see Christopher v. SmithKline Beecham Corp., 567 U.S. 142, 156 (2012) (“[A]gencies should provide regulated parties ‘fair warning of the conduct [a regulation] prohibits or requires.’” (alteration in original) [*21] (quoting Gates & Fox Co. v. Occupational Safety & Health Review Comm’n, 790 F.2d 154, 156 (D.C. Cir. 1986))).

Our caselaw has not addressed the impact of the IRS’ purported reversal of the position of a private letter ruling.

Petitioners further argue that we should consider the 2008 private letter ruling because the Court of Appeals for the Eleventh Circuit, to which this case is appealable, has recognized that while not binding precedent under section 6110(k)(3) courts may treat private letter rulings as “persuasive authority because they ‘do reveal the interpretation put upon the statute by the agency charged with the responsibility of administering the revenue laws.’”

Davis v. Commissioner, 716 F.3d 560, 569 n.26 (11th Cir. 2013) (quoting Hanover Bank v. Commissioner, 369 U.S. at 687), aff’g T.C. Memo. 2011-286; see sec. 6110(k)(3) (providing that written determinations such as private letter rulings cannot be cited as precedent).

The 2008 private letter ruling is neither persuasive nor relevant.

While it involves an easement deed that subtracted the value of posteasement improvements from the extinguishment proceeds, it makes no more than a passing reference to the deed’s proceeds provision and does not evaluate whether the subtraction violates the perpetuity requirement of section 170(h)(5).

There is no indication that its author analyzed the proceeds regulation or the deed’s proceeds provision.

To warrant deference the agency’s interpretation must reflect “the [*22] agency’s fair and considered judgment on the matter in question.”

Auer v. Robbins, 519 U.S. 452, 462 (1997).

The 2008 private letter ruling does not indicate that the author considered the text of the proceeds regulation or interpreted it to allow the subtraction of the value of posteasement improvements. Respondent’s current position is not a new or different interpretation.

We adhere to our prior position that the 2008 private letter ruling is not entitled to any weight.

C. State Law Exception

The proceeds regulation provides an exception to the proportionate share requirement if applicable State law allows the donor to receive “the full proceeds from the conversion without regard to the terms of the prior perpetual conservation restriction.” Sec. 1.170A-14(g)(6)(ii), Income Tax Regs. Petitioners argue that Alabama law allocates the full amount of any extinguishment proceeds to the donor, citing Burma Hills Dev. Co. v. Marr, 229 So. 2d 776 (Ala. 1969), making the proportionality formula irrelevant.

Burma Hills involved a mutually restrictive covenant applicable to all property within a residential subdivision. A neighboring landowner sued the condemning authority for violating the restrictive covenant on another person’s property.

The court refers to a mutually restrictive covenant as an equitable easement in favor of the property owners who have the right to enforce the covenant. Id. at 778.

However, such a covenant does not [*23] create a property right entitling the restricted property owners to compensation in a condemnation proceeding of the servient estate. Id. at 782.

The Conservancy has a property right granted by a deed of easement, not a mere covenant.

Under Alabama law a conservation easement is defined as “[a] nonpossessory interest of a holder in real property”. Ala. Code. sec. 35-18-1(1) (1997). Such an easement is a property right that entitles the easement holder to compensation for the taking of the easement.8

Portersville Bay Oyster Co. v. Blankenship, 275 So. 3d 124, 134 (Ala. 2018); see Ala. Code sec. 35-18-2(e) (1997) (“A conservation easement may be condemned * * * through eminent domain in the same manner as any other property interest.”).

Under Alabama law where property that is held in multiple estates is taken by eminent domain, each estate owner has a corresponding right to share in the condemnation award and the award is apportioned among the estate holders in accordance with their respective ownership interests.

Harco Drug, Inc. v. Notsla, Inc., 382 So. 2d 1, 3 (Ala. 1980) (holding a lessee and a lessor are both estate holders and entitled to damages in a condemnation proceeding).

[*24]

The donor would not be entitled to the full amount of the proceeds from a judicial extinguishment under Alabama law.

The State law exception of the proceeds regulation does not apply.

Accordingly, for the donor to qualify for the charitable contribution deduction for the conservation easement, the deed must satisfy the allocation of the extinguishment proceeds set forth in the proceeds regulation.

The deed did not properly allocate the extinguishment proceeds in accordance with the regulation, and the deduction is disallowed.

II. Accuracy-Related Penalties

Respondent determined that petitioners are liable for 40% penalties for gross valuation misstatements under section 6662(h) and, alternatively, 20% penalties under section 6662(a) and (b)(1) and (2) for negligence or disregard of rules or regulations and substantial understatements of income tax for 2013 and 2014.

A. Gross Valuation Misstatement Penalty

Taxpayers who meet the technical requirements for a charitable contribution of a conservation easement may deduct the easement’s fair market value. Sec. 170(c)(1). A gross valuation misstatement occurs when a taxpayer reports a value for the donated property that is 200% or more of the correct amount. Sec. 6662(h)(2).

On their 2012 return petitioners claimed an easement deduction of [*25] $2,788,000. If we find that the easement’s fair market value is $1,394,000 or less, there is a gross valuation misstatement as the claimed deduction is more than 200% of the correct amount. Respondent has the burden of production with respect to the penalties.

RERI Holdings I, LLC v. Commissioner, 149 T.C. 1, 37 (2017), aff’d sub nom. Blau v. Commissioner, 924 F.3d 1261 (D.C. Cir. 2019).

Reasonable cause is not available as a defense to the gross valuation misstatement penalty with respect to the deduction of a charitable contribution of property. Sec. 6664(c)(3).

When there is a substantial record of sales of the comparable easements, the donated easement’s fair market value is based on the sale prices of those comparable easements. Sec. 1.170A-14(h)(3)(i), Income Tax Regs. Because sales of conservation easements are rare, the regulations provide a “before and after” method to value the easement. Id. subdiv. (ii).

Under the before and after method, the easement’s fair market value is the difference between the fair market value of the property unencumbered by the easement (before value) and its fair market value after the easement’s grant (after value). Id.

When the donor owns additional unencumbered property contiguous with the easement property, the before and after method valuation must take into account any enhancement value of the contiguous property as a result of the easement. Id.

[*26]

When ascertaining the before and after values of easement property, an appraiser may use the comparable sales method or another accepted method. Hilborn v. Commissioner, 85 T.C. 677, 688-689 (1985).

The comparable sales method requires that the comparable properties be similar in nature to the donated property and that the sales be in arm’s-length transactions within a reasonable time of the donation. Wolfsen Land & Cattle Co. v. Commissioner, 72 T.C. 1, 19 (1979).

It may be appropriate to make adjustments to the sale prices of the comparable properties to account for differences in the time of the sale and the size or other features of the donated property. Id.

Fair market value is generally determined on the basis of the highest and best use of the donated property. Hilborn v. Commissioner, 85 T.C. at 689-690. The highest and best use is “[t]he highest and most profitable use for which the property is adaptable and needed or likely to be needed in the reasonably near future”. Olson v. United States, 292 U.S. 246, 255 (1934); Symington v. Commissioner, 87 T.C. 892, 897 (1986) (quoting Olson).

It does not depend on whether the owner has actually put the property to such use or whether he ever intends to do so. Stanley Works & Subs. v. Commissioner, 87 T.C. 389, 400 (1986). However, absent proof to the contrary the property’s current use is presumed its highest and best use. Estate of Pulling v. Commissioner, T.C. Memo. [*27] 2015-134, at *14.

Highest and best use is a question of fact. Stanley Works & Subs. v. Commissioner, 87 T.C. at 408. But it requires an objective assessment of the likelihood that the donated property would be put to its highest and best use. Sec. 1.170A-14(h)(3)(ii), Income Tax Regs.

The differences between the parties’ experts center on their opinions of the highest and best use of the easement property before the easement’s grant, in particular whether easement and noneasement portions of the Hewitt property had different highest and best uses.9

We consider expert opinions to assist us with understanding the evidence or determining facts in issue. Fed. R. Evid. 702. We evaluate expert opinions on the fair market value of property in the light of the experts’ demonstrated qualifications and all other evidence in the record. See Parker v. Commissioner, 86 T.C. 547, 561 (1986).

When experts offer competing estimates of fair market value, we decide how to weigh those estimates by examining the factors the experts considered in reaching their conclusions. See Casey v. Commissioner, 38 T.C. 357, 381 (1962).

We are not bound by the opinion of any expert witness and may accept or reject expert testimony in the exercise of sound judgment. [*28] Helvering v. Nat’l Grocery Co., 304 U.S. 282, 295 (1938); Estate of Newhouse v. Commissioner, 94 T.C. 193, 217 (1990).

Respondent’s expert, Mr. Petkovich, valued the easement on the basis of the highest and best use of the entire Hewitt property rather than the highest and best use of the easement property. He opined that the highest and best use before and after the easement’s grant were generally the same, agricultural and low-density residential use on the pastureland and timber cultivation, passive recreation, and hunting in the wooded areas.

He valued the entire Hewitt property (the contiguous and easement portions) at the same per-acre price of $1,850, or $2.6 million for the 1,325 acres, despite significant differences in the topography of the property and public access.

He determined that there was no change to the after value of the noneasement portion. For his after value of the easement portion, he used a comparable sales method of properties subject to restrictive easements.

He determined an after value for the easement portion of $1,100 per acre, or $282,920. He opined that the entire Hewitt property had an after value of $2.41 million, resulting in a $190,000 value for the easement.

Petitioners provided three expert witnesses. Mr. Bevis is the president of a local real estate company and has a master’s degree in real estate development. He has over 20 years of experience in the commercial and residential real estate [*29] business including experience in determining the highest and best use of land.

He opined that the highest and best use of the easement property before the easement’s grant was as a mobile home community, which could be sold to an investor once completed and leased. He opined its highest and best use after the easement’s grant was agriculture and recreation.

Mr. Bevis commissioned a market study and a proposed site plan for a mobile home community with 210 lots which he incorporated into his report. He testified that there was a need for affordable housing within 30 miles of the easement property. He testified that approximately 2,000 individuals commute to Randolph County daily.

He opined that the proposed community would be fully occupied within three years.

Mr. Bevis opined that the proposed mobile home community could charge a monthly rent of $235 to $285. We find this range reasonable. He considered the monthly rents in Randolph County, which ranged from $125 to $200.

He also considered the average monthly rents for mobile home communities in Birmingham and Atlanta of $267 and $379, respectively.

He adjusted these rents downward to account for the rural location of the easement property and upward to account for the newness and better quality of the proposed mobile homes and amenities offered as compared to existing housing.

Respondent objects to Mr. Bevis’ testimony because he did not provide a detailed analysis of housing needs [*30] or trends or provide supporting data for the three-year full occupancy assumption.

However, we find his testimony reliable and helpful as he testified on the basis of his significant experience and knowledge of the market in which he worked.

Mr. McCaleb estimated construction costs of approximately $1.6 million for the proposed mobile home community with a club house and a pool. His estimate did not include all amenities proposed in Mr. Bevis’ report. Respondent also objects to the site plan and cost estimate as vague and generalized.

However, we find Mr. McCaleb’s estimates sufficient for the limited purpose for which we rely on them, determining whether petitioners grossly misstated the easement’s fair market value.

Petitioners offered Mr. Veal as a valuation expert. Mr. Veal valued only the 257-acre easement property, which he opined had a per-acre value different from the remainder of the Hewitt property. He opined that the easement property’s highest and best use was as a mobile home community, relying, in part, on Mr. Bevis’ conclusions. Mr. Veal determined the easement property had a before value of $3.5 million, approximately $13,600 per acre, and an after value of $340,000, approximately $1,200 per acre plus $5,000 for each homesite. He [*31] determined an enhancement value of $55,000 for the Hewitt property not subject to the easement.

Mr. Veal used two valuation methods, income capitalization and comparable sales. For the income capitalization method, he used a monthly rent of $275 to project the net annual rental income for the proposed mobile home community for 2013 through 2015.

Although $275 is on the higher end of Mr. Bevis’ range for monthly rents, we find the amount reasonable. Mr. Veal also identified other sources of income such as wireless internet service fees that he included in his income computation.

He opined that the revenue stream from the mobile home community had a discounted present value of $5.1 million, then deducted the construction costs estimated by Mr. McCaleb, resulting in a before value of $3.5 million for the easement, which he later revised to $3.4 million.

See Trout Ranch, LLC v. Commissioner, T.C. Memo. 2010-283 (valuing real property by discounting the expected future cashflow from the property), aff’d, 493 F. App’x 944 (10th Cir. 2012).

Using the comparable sales method, Mr. Veal determined that the proposed mobile home community could be sold for at least $7 million within three years of its construction. He then deducted $3.6 million for estimated construction costs and profit to the developer for a before value of $3.4 million. Reconciling his two methods, he determined a before value of $3.5 [*32] million. He did not change this conclusion in his supplement to his report despite the reduction of the before value to $3.4 million under the income capitalization method.

Respondent identified issues with Mr. Veal’s assumptions in both his valuation methods, such as the occupancy rate, and the lack of supporting data for Mr. Bevis’ opinion on local housing needs. Respondent also argues that the mobile home parks in Mr. Veal’s comparable sales are not appropriate comparable properties because they had been in existence for 20 to 56 years.

We are convinced by respondent’s argument that such established communities would sell for more than a newly constructed one.

Respondent did not consider the age of the mobile homes themselves or the age in relation to the useful lives of the mobile homes, which could negatively affect the values of the comparable properties. Mr. Veal submitted a supplement to his report and admitted to errors in his analysis at trial.

At times he relied on incorrect or optimistic assumptions for the dates related to construction, leasing, and full occupancy of the mobile home community. We find the incorrect assumptions and errors are not sufficient to discredit Mr. Veal’s valuations in their entirety.

Furthermore, we find Mr. Petkovich’s valuation significantly flawed.

He applied the same per-acre value to all 1,325 acres of the Hewitt property despite [*33] significant differences in the topography of and public access to the easement and noneasement portions. We find this improper.

Mr. Bevis testified that only the easement portion with its pastureland and public access was suitable for development and development in noneasement portion was cost prohibitive because of its wooded, rougher terrain and limited public access.

At trial Mr. Petkovich acknowledged that the pastureland could have a different highest and best use from the timberland and is more valuable.

We find that Mr. Petkovich’s comparable sales were problematic.

He used sales of land similar in topography to the contiguous property and not significantly similar to the easement property, making his valuation unreliable. Each comparable property was wooded and lacked pastureland.

We find on the basis of Mr. Hewitt’s testimony and petitioners’ experts’ opinions that the pastureland differs significantly in value from the wooded land with steep or rough terrain where development is likely cost prohibitive.

None of the comparable properties appears suitable for residential development. Mr. Petkovich identified the principal use of the comparable properties as recreation. Furthermore, two comparable properties sold in foreclosure.

Mr. Petkovich made adjustments to the sale prices of the comparable properties to account for qualitative differences with the Hewitt property, for [*34] example, for location, shape, size, topography, and road and utility access.

However, we find that the adjustments were inappropriate or insufficient to compensate for the differences between the comparable properties and the easement property especially in the light of the fact that Mr. Petkovich valued the entire Hewitt property.

Moreover, while Mr. Petkovich listed over 10 characteristics of the properties for which he made price adjustments, he did not adequately explain the amount of the price adjustment for each characteristic or the method he used to determine the price adjustment.

Finally, some adjustments are clearly inappropriate because he compared the entire Hewitt property rather than only the easement property.

For example, he adjusted the sale prices of four comparable properties downward because of their relatively small sizes (approximately 200 acres) as compared to the 1,325-acre Hewitt property; but the easement property was only 257 acres.

As part of our analysis, we must consider the probability that the property would be developed as proposed and the market demand for the proposed community.

Respondent has raised some legitimate concerns in this regard. However, we do not need to determine the easement’s fair market value.

We are determining whether petitioners overstated the value by 200%.

We take into account the issues with Mr. Veal’s valuation. However, significant elements of [*35] his valuation and the proposed mobile home community were conservative. The proposed plan would place only 210 homes on 257 acres of land. This is a low-density residential use. Mr. Petkovich opined that the property was suitable for low-density residential use.

The county’s population of approximately 22,380 is stable, and the proposed community would add a small number of homes relative to the population. The median income in the county, approximately $35,000, would support the monthly rent that Mr. Veal used in the income capitalization method.

We find that petitioners did not grossly misstate the value of the easement by claiming a deduction of $2,788,000.

Mr. Petkovich was unduly pessimistic in his valuation and incorrectly applied a uniform value to the entire Hewitt property. Our decision not to impose the gross valuation misstatement penalty does not depend solely on expert valuations. Mr. Hewitt gave credible testimony that the easement property was the most valuable part of the Hewitt property, confirming Mr. Bevis’ and Mr. Veal’s opinions.

Mr. Hewitt believed that the easement property was the portion of his family’s land that most needed protection from development. He has lived in Randolph County his entire life and has experience in land acquisition. We find his testimony helpful and reliable. He believed that the easement property had a before value of $12,000 to $15,000 per acre, a value [*36] that would clearly make any penalty inapplicable.

Mr. Hewitt purchased 79 acres of nearby wooded land with steep topography and limited public access, comparable to the unencumbered Hewitt property, for $1,582 per acre. This sale price aligns with Mr. Veal’s valuation of the contiguous Hewitt property. In June 2014 Mr. Hewitt purchased a.72-acre parcel of land adjacent and comparable to the topography of the easement property for $12,000, which supports Mr. Veal’s before value.

We find Mr. Hewitt’s testimony regarding the value of his property persuasive.

“[A] landowner is competent to offer opinion testimony with respect to the value of his or her property.” Schmidt v. Commissioner, T.C. Memo. 2014-159, at *28. We have observed that a property owner “is qualified, by his ownership alone, to testify as to its value” and “the special knowledge accorded a property owner rests on a presumed familiarity with the property, knowledge or acquaintance with its uses and purposes, and experience in dealing with it.” Estate of McCampbell v. Commissioner, T.C. Memo. 1991-141, 1991 WL 40519; see also LaCombe v. A-T-O, Inc., 679 F.2d 431, 433 (5th Cir. 1982) (“[T]he owner of property is qualified by his ownership alone to testify as to its value.”).

We find that the correct value of the easement was at least $1.4 million and petitioners are not liable for the section 6662(h) penalties.

[*37]

B. 20% Accuracy-Related Penalties

Respondent determined that petitioners are liable under section 6662(a) and (b)(1) and (2) for 20% accuracy-related penalties for 2013 and 2014 for underpayments attributable to negligence or disregard of rules and regulations and substantial understatements of income tax.

Negligence is “any failure to make a reasonable attempt to comply with the provisions of the internal revenue laws or to exercise ordinary and reasonable care in the preparation of a tax return.” Sec. 1.6662-3(b)(1), Income Tax Regs.

A substantial understatement of income tax is defined as the greater of 10% of the tax required to be shown on a return for the year or $5,000. Sec. 6662(d)(1)(A).

Section 6662(a) accuracy-related penalties do not apply where the taxpayers establish that they acted with reasonable cause and in good faith. Sec. 6664(c)(1); Neonatology Assocs., P.A. v. Commissioner, 115 T.C. 43, 98 (2000), aff’d, 299 F.3d 221 (3d Cir. 2002).

We determine reasonable cause and good faith on a case-by-case basis taking into account all pertinent facts and circumstances. Sec. 1.6664-4(b)(1), Income Tax Regs.

The most important factor is the extent of the taxpayer’s effort to assess his proper tax liability. Id. The taxpayer’s education and business experience are also relevant. Id. para. (c)(1).

[*38]

Reliance on professional advice may constitute reasonable cause and good faith if the reliance was reasonable. Freytag v. Commissioner, 89 T.C. 849, 888 (1987), aff’d on another issue, 904 F.2d 1011 (5th Cir. 1990), aff’d, 501 U.S. 868 (1991); see sec. 1.6664-4(b)(1), (c)(1), Income Tax Regs. Reliance on professional advice is reasonable if (1) the professional was independent and had the expertise to justify reliance, (2) the taxpayers provided necessary and accurate information to the adviser, and (3) the taxpayers actually relied in good faith on the advice. Neonatology Assocs., P.A. v. Commissioner, 115 T.C. at 98-99.

Taxpayers cannot rely on professional advice as a defense if they knew or should have known that the adviser had a conflict of interest; such an adviser is not independent. Id. at 98; see Paschall v. Commissioner, 137 T.C. 8, 22 (2011).

An independent adviser follows his regular course of professional conduct in rendering advice, does not give unsolicited advice, and does not have a stake in the transaction besides his regular hourly rate. 106 Ltd. v. Commissioner, 136 T.C. 67, 80 (2011), aff’d, 684 F.3d 84 (D.C. Cir. 2012).

Mr. Hewitt first had the idea to protect his family’s land when his father’s health began to decline.

Mr. Hewitt began to appreciate the land in a new way. He had lived on the land his entire life and worked on the farm with his father.

He credibly testified that he wanted to protect the property so that his children could [*39] one day have the same opportunity.

An acquaintance recommended Large & Gilbert because of its experience with conservation easements.

Mr. Hewitt understood that Large & Gilbert had a good reputation in the tax community and had been in business for approximately 50 years.

He did not solicit or initiate a tax strategy. His motivation was to protect his family’s property, not to obtain a tax benefit.

Mr. Hewitt reasonably believed that his contacts at Large & Gilbert were competent tax professionals and their advice was in compliance with tax law. He provided Large & Gilbert with the necessary and accurate information to prepare the returns to the extent the information was available. He did not know or have reason to know that the easement deduction would be disallowed.

Mr. Hewitt also reasonably and in good faith relied on Mr. Clower’s qualified appraisal.

He reviewed Mr. Clower’s appraisal and found it consistent with his own opinion of the land’s value and his opinion that the pastureland was more valuable than the wooded areas. He credibly testified that he believed the easement property was worth between $12,000 and $15,000 per acre before the easement’s grant.

He also credibly testified that he tried to find out how much his father had paid for the property but could not. The land had been in his family for nearly 60 years.

We find that Mr. Hewitt’s reliance on Mr. Clower also supports a [*40] finding that petitioners acted with reasonable cause and in good faith in claiming the deduction. See Dunlap v. Commissioner, T.C. Memo. 2012-126, slip op. at 76 (finding that reasonable and good-faith reliance on a qualified appraiser is sufficient to establish reasonable cause).

Finally, we note that Mr. Hewitt also received conservation advice from Dr. Keller. Mr. Hewitt trusted Large & Gilbert’s recommendation of the Conversancy. Dr. Keller has a doctorate in conservation biology.

Mr. Hewitt credibly testified that he understood that Dr. Keller was knowledgeable and experienced in conservation issues.

We find that Mr. Hewitt reasonably believed that Dr. Keller was knowledgeable and experienced in advising on the preservation of land through conservation easements. Mr. Hewitt personally met with Dr. Keller to discuss his desire to protect the family’s land from development, and Dr. Keller visited the property.

The Conservancy drafted the easement deed. Dr. Keller’s involvement contributed to Mr. Hewitt’s belief that he could rely on Large & Gilbert’s advice. When Mr. Hewitt granted the easement in 2012, he did not understand Dr. Keller to be promoting a tax strategy.

We find Mr. Hewitt sincere in his testimony that he wanted to protect his family’s farm land.

We also note that he did not claim an excessive value for the deduction on the 2012 return.

However, after 2012 Mr. Hewitt began a troubling [*41] practice of purchasing rural, undeveloped land and selling interests in pass-through entities that he created to hold the land.

Numerous entities associated with Mr. Hewitt granted conservation easements on the recently purchased land, and the investors, including Mr. Hewitt, claimed charitable contribution deductions for the easement donations far in excess of the original purchase prices for the recently purchased, underlying properties.

Respondent asserts that Mr. Hewitt has realized over $3.5 million in gain from these transactions and the investors claimed millions of dollars of improper charitable contribution deductions.

Petitioners claimed the carryover deductions at issue here for years during which Mr. Hewitt was engaging in this activity.

Large & Gilbert assisted in these transactions, and individuals from Large & Gilbert invested in the entities and claimed easement deductions.

Respondent argues that Large & Gilbert is a promoter of conservation easement transactions.

Taxpayers cannot rely on the advice of a professional who has a conflict of interest or is a promoter of the investment.

Mortensen v. Commissioner, 440 F.3d 375, 387 (6th Cir. 2006), aff’g T.C. Memo. 2004-279.

We find that Large & Gilbert was not a promoter and did not have a conflict of interest with respect to the easement donation on Mr. Hewitt’s family farm.

Mr. Hewitt did not want to donate the easement on his family farm to obtain the tax benefits. He had a [*42] genuine desire to protect the land for future generations. Large & Gilbert did not promote the easement at issue.

Mr. Hewitt’s activities of land purchases and conservation easements after 2012 are problematic.

However, we find that under the circumstances of the easement donation of his family’s farm land Mr. Hewitt reasonably and in good faith relied on Large & Gilbert’s experienced advice.

We have weighed Mr. Hewitt’s post-2012 activities against his sincere intent to preserve his family’s farm land for his father and children. The reasonable cause defense depends on the particular facts and circumstances of each case.

Petitioners claimed a deduction for the easement that aligned with Mr. Hewitt’s opinion of the easement property’s fair market value.

We disallowed the easement deduction because the deed did not satisfy technical requirements for a conservation easement deduction.

We do not expect petitioners to understand these technical requirements.

They made a sufficient good-faith effort to assess their tax liability and reasonably relied on professional advice when claiming the easement deduction.

We have not addressed petitioners’ omission of cost basis information on Form 8283 and the attached statement as a basis to deny the easement deduction.

Omission of cost basis information is a failure to strictly or substantially comply [*43] with the regulatory reporting requirements.10 RERI Holdings I, LLC v. Commissioner, 149 T.C. at 16-17.

Failure to substantially comply with the reporting requirements generally precludes a charitable contribution deduction. Bond v. Commissioner, 100 T.C. 32, 41 (1993); see sec. 170(a)(1) (“A charitable contribution shall be allowable as a deduction only if verified under regulations prescribed by the Secretary.”).

Section 170(f)(11)(A)(ii)(II) provides a reasonable cause defense for a failure to comply with the reporting requirements if “the failure to meet such requirements is due to reasonable cause and not to willful neglect.” In such a case, the deduction will not be disallowed.

We find that the omission of the basis information does not preclude a reasonable cause defense to the section 6662(a) penalties.

Mr. Hewitt explained to Large & Gilbert the reason that he could not obtain the necessary basis information, and Large & Gilbert advised him that the deduction would not be disallowed for failing to provide basis information that is not reasonably obtainable.

Mr. Hewitt provided accurate information to Large & Gilbert to prepare the Form 8283.

We find that Mr. Hewitt’s efforts to determine his basis in [*44] the property were sufficient and the basis information was not reasonably obtainable.

However, the attachment does not sufficiently restate the explanation that Mr. Hewitt provided to Large & Gilbert or at trial.

It states that the basis “remains to be determined with accuracy”.

It also contains wording similar to that which we have previously identified as inadequate explanation, that the basis is not taken into consideration when computing the amount of the deduction and the donor had a holding period in excess of 12 months, qualifying the property as capital gains property.

See Belair Woods, LLC v. Commissioner, T.C. Memo. 2018-159, at *11-*12.

Despite the inadequacy of the explanation, we find that petitioners reasonably relied on Large & Gilbert to prepare the Form 8283 in a correct and sufficient manner to explain the omission of the basis information.

Petitioners’ failure to provide basis information and the inadequate explanation do not negate their reasonable cause and good faith in claiming the easement deduction.

Accordingly, we find petitioners not liable for the section 6662(a) accuracy-related penalties for 2013 and 2014.

In reaching our holdings herein, we have considered all arguments made, and, to the extent not mentioned above, we conclude they are moot, irrelevant, or without merit.

[*45] To reflect the foregoing,

Decision will be entered for respondent on the tax deficiencies and for petitioners on the penalties.

FOOTNOTES

1. Unless otherwise indicated, section references are to the Internal Revenue Code (Code) in effect at all relevant times, and Rule references are to the Tax Court Rules of Practice and Procedure. Some dollar and acreage amounts are rounded.

2. Petitioners concede to $31,771 in unreported long-term capital gain as determined in the notice of deficiency. Respondent has conceded any penalty related to this amount.

3. Respondent alternatively argues that the deed fails sec. 170(h)(5) because it allows a merger of the estates and fails sec. 170(h)(2) because it does not designate the location for five homesites reserved in the deed. Sec. 170(h)(2)(C) requires the deed to place “a restriction (granted in perpetuity) on the use” of the property. Mr. Hewitt intended the homesites for his children so that they may be able to live on the property one day. Petitioners contend that the delay in designating the homesite locations would better protect the easement’s conservation purposes. We have held that a reserved right to construct a residential subdivision without designating the location at the outset violates sec. 170(h)(2). Pine Mountain Pres., LLLP v. Commissioner, 151 T.C. 247 (2018), appeal filed (11th Cir. May 7, 2019); Carter v. Commissioner, T.C. Memo. 2020-21, at *19. Petitioners seek to distinguish Pine Mountain. However, for them to qualify for the deduction, the deed must satisfy both sec. 170(h)(2) and (5). Accordingly, we do not address the sec. 170(h)(2) issue.

4. Petitioners’ opening brief lists no proposed findings of fact in the form of numbered statements as required by Rule 151(e)(3) and includes some recital of testimony. Respondent argues that because of this noncompliance with our Rules we should adopt his proposed findings of fact as fully and fairly presenting all relevant facts. We have considered petitioners’ noncompliance but do not fully adopt respondent’s proposed findings. See Beane v. Commissioner, T.C. Memo. 2009-152, slip op. at 7 (adopting the Commissioner’s proposed findings because the taxpayer’s briefs did not comply with Rule 151(e) and “did not assist the Court in making sense of a voluminous and confusing record”).

5. An individual taxpayer’s charitable contribution deductions are limited to 50% of his adjusted gross income, and the taxpayer may carry over the excess contributions for five years. Sec. 170(b)(1)(A), (d).

6. Alternatively, petitioners challenge the regulation’s procedural and substantive validity. We upheld the procedural and substantive validity of the proceeds regulation in Oakbrook Land Holdings, LLC v. Commissioner, 154 T.C. __, __ (slip op. at 25, 28-31) (May 12, 2020).

7. The Court of Appeals for the Fifth Circuit disallowed the deduction under the ordinary standard of construction of the proceeds regulation. PBBM-Rose Hill, Ltd. v. Commissioner, 900 F.3d 193, 200 (5th Cir. 2018).

8. A conservation easement may be condemned through eminent domain. Ala. Code sec. 35-18-2(e) (1997). The statute does not expressly state that the easement holder is entitled to compensation.

9. Both valuation experts used incorrect acreage for the contiguous property, and they used different acreage. After the parties submitted the expert reports, the parties stipulated the size of the contiguous property. See Rule 91(a). We find the errors insignificant to our determination of whether petitioners are liable for the gross valuation misstatement penalty.

10. Respondent argues that petitioners are not entitled to deduct the easement donation because they did not satisfy the reporting requirements of sec. 1.170A-13(c), Income Tax Regs. We have not disallowed the easement on this basis but address the reporting requirements in our consideration of petitioners’ liability for sec. 6662(a) accuracy-related penalties.

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  1. Pingback: Eleventh Circuit Deals IRS Defeat In Conservation Easement Struggle – THE MIRROR OF MEDIA

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  4. lawsinflorida

    February 19, 2022 at 2:12 am

    As for Jill Pryor’s tax cases, the first case up for another ‘status update’ is the Docket
    River’s Edge Landing, LLC, No.: 1111-18 – due by Feb. 28, 2022 and the second is the Dasher’s Bay at Effingham, LLC, No.: 4078-18, the update due by April 14, 2022.

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Appellate Circuit

Constance Daniels, Student of Hard Knocks, Admonished Florida Lawyer and Friend of The Eleventh Circuit

LIF cannot comprehend how the People of Florida and the United States of America are so accepting of Brazen Corruption.

Published

on

LIF COMMENTARY

The article below starts with Constance Daniels failure to pay for her law school tuition loan issued in 2003. She defaulted in 2005 per the complaint. The USA won a judgment of $164k+ in 2011.

In 2010, Wells Fargo commenced foreclosure proceedings in state court, Hillsborough County.

While all this was going on, Ms Daniels, a Republican, was attempting to become a State judge in 2014, which failed.

In late November of 2017 a settlement was reached, dismissing the Wells Fargo foreclosure complaint.

In 2017-2018, lawyer Daniels was failing to look after her client(s). Many moons later, in 2021, that would result in a slap on the wrist by the referee, Hon. Daniel D. Diskey for Fl. Bar.

Then we move onto the June 2018 complaint, filed by Daniels against the mortgage servicer. It was removed to the lower court in Middle District  of Florida Federal Court.

The court, via one of the Moody clan of judges, sided with Select Portfolio Servicing, LLC and this formed the appeal which was decided this week by the 11th Circuit.

In Nov. 2020, Wells Fargo filed a renewed foreclosure complaint against Daniels and her homestead in State court. In Sept 2021, Wells Fargo voluntarily dismissed the case and terminated the lis pendens ‘due to loan modification’.

The issue for LIF in this case is quite clear. Who the 11th Circuit has chosen to upend it’s prior stance that mortgage servicers can do no wrong under the FDCPA, despite irrefutable facts confirming otherwise.

For example, LIF refers to the case we highlighted regarding a deficiency judgment (State case, March 2022):

Florida Lawyer Stephanie Schneider Appeals a Mortgage Foreclosure Deficiency Judgment

In that case, LIF investigated beyond the court opinions to discover the wife is a Florida Lawyer and her husband, Laurence Schneider is owner of S&A Capital, Inc., a mortgage investment company, has built a national portfolio of performing mortgages that have been written off by other financial institutions.

Our angst is clear. Lawyers are being treated preferentially by the courts over regular citizens and homeowners.

In the case of Daniels, whilst she may have legitimate arguments, there have been many citizens who have failed before her by the wordsmithing by the Federal and Appellate Court(s), which has refused to apply the correct legal interpretation of the FDCPA, or clarify the question(s) with the federal consumer agency, the CFPB.

Whilst LIF is unhappy with the anti-consumer watchdog, the Consumer Financial Protection Bureau (CFPB) which is a revolving door for staff to leave the Bureau and go work for a creditor rights law firm without any restriction or time limit (non-compete), the Daniels case should have been referred to the CFPB for interpretation about the matters of ‘first impression’.

The Second Circuit recently did so for a RESPA question in Naimoli v Ocwen and we highlighted the case on our sister website, LawsInTexas.com (Laws In Texas). Instead of doing so in Daniels, there is a dissenting opinion by Judge Lagoa, who’s father in law is a  senior judge in SD Florida (Paul C. Huck) and her hubby is a Jones Day Partner and apparently the leader of the Miami Chapter of the Federalist Society. Lagoa herself is a former Florida Supreme Court justice appointed by Gov DeSantis who ‘ensured he puts conservatives on the bench so that anyone coming to court knows how the court will rule’.

LIF anticipates the Daniels case will be subject to a rehearing petition and presented to the full en banc court for reconsideration. The opinion here is similar to the recent Newsom FDCPA opinion, which was too negative towards Wall St and the financial banking services community. As such, it was vacated by the en banc panel while they reconsider. The courts’ decision is currently pending.

In this case, there is still time for the 11th Circuit to correctly ask the CFPB to provide its opinion on the underlying facts raised on appeal and decided by the 3-panel.

However, what the judiciary won’t do is apply this retroactively to the thousands of cases which have been incorrectly tossed in the last 14 years, resulting in homeowners losing their homes to wrongful foreclosures.

United States v. Daniels (2011)

(8:11-cv-01058)

District Court, M.D. Florida

MAY 13, 2011 | REPUBLISHED BY LIT: MAY 26, 2022

USA Motion for Summary Judgment with Exhibits, Doc. 13, Aug 17, 2011

ORDER granting  Motion for summary judgment in favor of the Plaintiff and against the defendant in the amount of $109,813.74,

together with accrued interest in the amount of $54,097.10 as of February 28, 2011,

plus interested at the rate of 8.25 percent per annum and a daily rate of $24.80, until the date of judgment;

for post-judgment interest, at the legal rate, from the entry of final judgment until the date of payment;

and for such other costs of litigation otherwise allowed by law.

The Clerk of Court is directed to close the case.

Signed by Judge Elizabeth A. Kovachevich on 9/22/2011.

(SN) (Entered: 09/22/2011)

U.S. District Court
Middle District of Florida (Tampa)
CIVIL DOCKET FOR CASE #: 8:11-cv-01058-EAK-AEP

USA v. Daniels
Assigned to: Judge Elizabeth A. Kovachevich
Referred to: Magistrate Judge Anthony E. Porcelli
Demand: $164,000
Cause: 28:1345 Default of Student Loan
Date Filed: 05/13/2011
Date Terminated: 09/22/2011
Jury Demand: None
Nature of Suit: 152 Contract: Recovery Student Loan
Jurisdiction: U.S. Government Plaintiff
Plaintiff
USA represented by I. Randall Gold
US Attorney’s Office – FLM
Suite 3200
400 N Tampa St
Tampa, FL 33602-4798
813/274-6026
Fax: 813/274-6247
Email: FLUDocket.Mailbox@usdoj.gov
LEAD ATTORNEY
ATTORNEY TO BE NOTICED
V.
Defendant
Constance Daniels represented by Constance Daniels
PO Box 6219
Brandon, FL 33608
PRO SE

 

Date Filed # Docket Text
05/13/2011 1 COMPLAINT against Constance Daniels filed by USA. (Attachments: # 1 Exhibit A, # 2 Exhibit B, # 3 Civil Cover Sheet)(MRH) (Entered: 05/13/2011)
05/13/2011 2 Summons issued as to Constance Daniels. (MRH) (Entered: 05/13/2011)
05/13/2011 3 ORDER regulating the processing of civil recovery actions. Service must be perfected by 09/10/2011. Signed by Deputy Clerk on 5/13/2011. (MRH) (Entered: 05/13/2011)
05/13/2011 4 STANDING ORDER: Filing of documents that exceed twenty-five pages. Signed by Judge Elizabeth A. Kovachevich on 7/15/08. (MRH) (Entered: 05/13/2011)
05/19/2011 5 NOTICE of designation under Local Rule 3.05 – track 1 (CLM) (Entered: 05/19/2011)
05/20/2011 6 CERTIFICATE OF SERVICE re 3 ORDER regulating the processing of civil recovery actions by USA (Gold, I.) Modified on 5/20/2011 (MRH). (Entered: 05/20/2011)
05/25/2011 7 CERTIFICATE OF SERVICE by USA (Notice of Designation Under Local Rule 3.05) (Gold, I.) (Entered: 05/25/2011)
07/06/2011 8 RETURN of service executed on 7/5/11 (Marshal 285) by USA as to Constance Daniels. (MRH) (Entered: 07/06/2011)
07/27/2011 9 MOTION for default judgment against Constance Daniels by USA. (Gold, I.) Modified on 7/27/2011 (MRH). NOTE: TERMINATED. INCORRECT MOTION RELIEF. ATTORNEY NOTIFIED. ATTORNEY TO REFILE. (Entered: 07/27/2011)
07/27/2011 10 MOTION for entry of clerk’s default against Constance Daniels by USA. (Gold, I.) Motions referred to Magistrate Judge Anthony E. Porcelli. (Entered: 07/27/2011)
07/28/2011 11 CLERK’S ENTRY OF DEFAULT as to Constance Daniels. (MRH) (Entered: 07/28/2011)
07/29/2011 12 ANSWER to 1 Complaint by Constance Daniels.(BES) (Entered: 07/29/2011)
08/17/2011 13 MOTION for summary judgment by USA. (Attachments: # 1 Exhibit A, # 2 Exhibit B)(Gold, I.) (Entered: 08/17/2011)
09/09/2011 14 ENDORSED ORDER TO SHOW CAUSE as to Constance Daniels.. The plaintiff filed a motion for summary judgment on 8/17/11. The defendant had up to and including 9/3/11 to respond to the motion. To date no response has been filed. Therefore, it is ORDERED that the defendant has up to and including 9/19/11 in which to show cause why the pending motion should not be granted. Signed by Judge Elizabeth A. Kovachevich on 9/9/2011. (SN) (Entered: 09/09/2011)
09/22/2011 15 ORDER granting 13 Motion for summary judgment in favor of the Plaintiff and against the defendant in the amount of $109,813.74, together with accrued interest in the amount of $54,097.10 as of February 28, 2011, plus interested at the rate of 8.25 percent per annum and a daily rate of $24.80, until the date of judgment; for post-judgment interest, at the legal rate, from the entry of final judgment until the date of payment; and for such other costs of litigation otherwise allowed by law. The Clerk of Court is directed to close the case.. Signed by Judge Elizabeth A. Kovachevich on 9/22/2011. (SN) (Entered: 09/22/2011)
10/12/2011 16 ABSTRACT of judgment as to Constance Daniels. (DMS) (Entered: 10/12/2011)

Order GRANTING Summary Judgment for $164k Student Loan Debt, Doc. 15, Sep 22, 2011

Daniels v. Select Portfolio Servicing, Inc.

(2018-Present)

(8:18-cv-01652)

District Court, M.D. Florida

ORDER

THIS CAUSE comes before the Court upon Defendant’s Motion to Dismiss Plaintiff’s Second Amended Complaint (Dkt. 24) and Plaintiff’s Response in Opposition (Dkt. 27).

The Court, having reviewed the motion, response, and being otherwise advised in the premises, concludes that Defendant’s motion should be granted.

Specifically, Plaintiff’s second amended complaint will be dismissed with prejudice because any further amendment is futile.

BACKGROUND

As the Court explained in its prior Order granting Defendant’s motion to dismiss, (see Dkt. 22), Plaintiff Constance Daniels initially filed suit in Florida state court against Defendant Select Portfolio Servicing, Inc. (“SPS”) alleging three Florida claims, which included a claim under Florida’s civil Racketeer Influenced and Corrupt Organizations (“RICO”) Act.

On July 10, 2018, SPS removed the case to this Court based on diversity jurisdiction.

On August 6, 2018, SPS moved to dismiss the entire complaint.

In relevant part, SPS argued that the complaint failed to allege any of the elements of a RICO claim.

On August 27, 2018, Daniels filed an amended complaint, which mooted SPS’s motion to dismiss.

Daniels’ amended complaint alleged two claims: a claim under the Fair Debt Collection Practices Act (“FDCPA”) and a claim under the Florida Consumer Collections Practices Act (“FCCPA”).

Both claims relied on the same allegations.

To summarize, Daniels alleged that SPS had “improperly servic[ed]” her mortgage loan “in reckless disregard” of her consumer rights. (Dkt. 12).

The amended complaint did not attach any mortgage statements.

SPS moved to dismiss Daniels’ amended complaint based on her failure to allege that SPS ever attempted to collect the mortgage balance.

The Court granted SPS’s motion.

The Court noted that the amended complaint did not identify or attach any communication from SPS to Daniels.

The Court also surmised that the dispute was more akin to a dispute about an improper accounting of Daniels’ mortgage.

The Court dismissed the FDCPA and FCCPA claims and provided Daniels a final opportunity to amend her complaint.

Daniels filed a second amended complaint.

The allegations are largely unchanged.

But, significantly, Daniels attaches multiple monthly mortgage statements that SPS sent to her.

She now claims that these mortgage statements constitute debt collection activity under the FDCPA and FCCPA.

SPS’s motion to dismiss argues that the monthly mortgage statements comply with Regulation Z of the Truth in Lending Act (the “TILA”)—they were not communications in connection with the collection of a debt—and therefore do not constitute debt collection activity under the FDCPA and FCCPA.

As explained further below, the Court agrees with SPS’s position based on the Court’s detailed review of the monthly mortgage statements.

Therefore, the second amended complaint will be dismissed with prejudice.

STANDARD OF REVIEW

Federal Rule of Civil Procedure 12(b)(6) allows a court to dismiss a complaint when it fails to state a claim upon which relief can be granted.

When reviewing a motion to dismiss, a court must accept all factual allegations contained in the complaint as true.

Erickson v. Pardus, 551 U.S. 89, 94 (2007) (internal citation omitted).

It must also construe those factual allegations in the light most favorable to the plaintiff.

Hunt v. Aimco Properties, L.P., 814 F.3d 1213, 1221 (11th Cir. 2016) (internal citation omitted).

To withstand a motion to dismiss, the complaint must include “enough facts to state a claim to relief that is plausible on its face.”

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).

A claim has facial plausibility “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

Pleadings that offer only “labels and conclusions,” or a “formulaic recitation of the elements of a cause of action,” will not do.

Twombly, 550 U.S. at 555.

DISCUSSION

The FDCPA and FCCPA prohibit debt collectors from using a “false, deceptive, or misleading representation or means in connection with the collection of any debt.”

See e.g. 15 U.S.C. § 1692e (emphasis added);

Fla. Stat. § 559.72 (“In collecting debts, no person shall . . .”) (emphasis added).

It is axiomatic then that the “challenged conduct is related to debt collection” to state a claim under either statute.

Reese v. Ellis, Painter, Ratterree & Adams, LLP, 678 F.3d 1211, 1216 (11th Cir. 2012);

see also Garrison v. Caliber Home Loans, Inc., 233 F. Supp. 3d 1282, 1286 (M.D. Fla. 2017) (“the FCCPA is a Florida state analogue to the federal FDCPA.”) (internal citations omitted).

“[T]he Eleventh Circuit has not established a bright-line rule” as to what qualifies as “in connection with the collection of any debt.”

Dyer v. Select Portfolio Servicing, Inc., 108 F. Supp. 3d 1278, 1280 (M.D. Fla. 2015).

“As a general principle, the absence of a demand for payment is not dispositive,” and courts should “instead consider whether the overall communication was intended to induce the debtor to settle the debt.”

Wood v. Citibank, N.A., No. 8:14-cv-2819-T-27EAJ, 2015 WL 3561494, at *3 (M.D. Fla. June 5, 2015) (citations omitted).

The second amended complaint attaches multiple monthly mortgage statements.1

Because the communications at issue here are all monthly mortgage statements, a discussion of the TILA is necessary.

The TILA requires SPS, a servicer, to send monthly mortgage statements.

12 C.F.R. § 1026.41. Specifically, 12 C.F.R. § 1026.41(d) requires that servicers provide debtors with detailed monthly mortgage statements containing, among other things: the “amounts due;” the “payment due date;” “the amount of any late payment fee, and the date that fee will be imposed if payment has not been received;” “an explanation of amount due, including a breakdown showing how much, if any, will be applied to principal, interest, and escrow and, if a mortgage loan has multiple payment options, a breakdown of each of the payment options;” “any payment amount past due;” a breakdown of “the total of all payments received since the last statement” and “since the beginning of the current calendar year;” “a list of all transaction activity that occurred since the last statement;” “partial payment information;” “contact information;” and detailed “account information” and “delinquency information.”

The Consumer Financial Protection Bureau (the “CFPB”) has issued a bulletin providing that a

“servicer acting as a debt collector would not be liable under the FDCPA for complying with [monthly mortgage statement] requirements.”

Implementation Guidance for Certain Mortgage Servicing Rules, 10152013 CFPB GUIDANCE, 2013 WL 9001249 (C.F.P.B. Oct. 15, 2013).

Courts have largely followed this guidance.

See, e.g., Jones v. Select Portfolio Servicing, Inc., No. 18-cv-20389, 2018 WL 2316636, at *3 (S.D. Fla. May 2, 2018) (citing 12 C.F.R. § 1026.41(d));

Brown v. Select Portfolio Servicing, Inc., No. 16-62999-CIV, 2017 WL 1157253 (S.D. Fla. Mar. 24, 2017) (noting the guidance and finding that monthly mortgage statements in compliance with the TILA were not debt collection).

The monthly mortgage statements at issue here were in conformity with the TILA requirements.

Moreover, the subject statements were substantially similar to model form H-30(B) provided by Appendix X to Part 1026 of TILA Regulation Z.

See also Jones, 2018 WL 2316636, at *4 (noting the similarities between a monthly mortgage statement and the model form in concluding no debt collection).

Although the monthly mortgage statements may not be identical to model form H-30(B), the differences are not significant deviations.

Notably, the plaintiff in Brown brought a nearly identical lawsuit against SPS.

The court explained in detail why the plaintiff was unable to state a claim under the FDCPA and FCCPA because the monthly mortgage statement was required to be sent pursuant to the TILA.

The complaint in Brown was dismissed with prejudice because “amendment would be futile” given that the basis for the claims was a monthly mortgage statement that was not actionable as a matter of law.

See 2017 WL 1157253, at *2-*4.

Also, the Jones court discussed in detail the numerous prior decisions addressing this issue, including multiple cases from this district that have held that monthly mortgage statements

“are almost categorically not debt collection communications under the FDCPA.”

2018 WL 2316636, at *5 (citing cases).

The particular monthly mortgage statements before the court in Jones were also sent by SPS and were substantively identical to the statements at issue in this case and in Brown.

Most recently, in Mills v. Select Portfolio Servicing, Inc., No. 18-cv-61012- BLOOM/Valle, 2018 WL 5113001 (S.D. Fla. Oct. 19, 2018), the court “agree[d] with the reasoning in Jones and [concluded] that the Mortgage Statements at issue [were] not communications in connection with a collection of a debt.” Id. at *2.

In conclusion, the substance of the monthly mortgage statements at issue in this case is substantially similar to model form H-30(B).

Any minor discrepancies in the language—when taken in the context of the document as an otherwise carbon copy of form H-30(B)—do not take the statements out of the realm of a monthly mortgage statement and into the realm of debt collection communications.

It is therefore ORDERED AND ADJUDGED that:

1. Defendant’s Motion to Dismiss Plaintiff’s Second Amended Complaint (Dkt.

24) is granted.

2. Plaintiff’s Second Amended Complaint is dismissed with prejudice.

3. The Clerk of Court is directed to close this case and terminate any pending motions as moot.

DONE and ORDERED in Tampa, Florida on December 18, 2018.

 

 

 

 

Copies furnished to: Counsel/Parties of Record

Judge Bert Jordan’s “Reputation” Warning to New Florida Lawyers

Constance Daniels Admonished by the Florida Bar (2021)

Constance Daniels, P.O. Box 6219, Brandon, admonishment in writing and directed to attend Ethics School effective immediately following a November 24 court order.

(Admitted to practice: 1995)

Daniels failed to act with reasonable diligence and failed to communicate with her client in connection with a dissolution of marriage action.

Daniels also failed to timely respond to the Bar’s formal complaint.

(Case No: SC21-683)

Constance Daniels v. Select Portfolio Servicing, Inc. (2022)

11th Cir., Published Opinion

(19-10204, May 24, 2022)

“A matter of first impression” 14 Years after the great recession and greatest theft of citizens homes in the history of the United States.

It’s quite incredulous how the 11th Circuit selects a Sanctioned Fl. Republican Lawyer, a failed judicial candidate and one who is facing foreclosure, for this ‘landmark’ published opinion in 2022.

Panel Author, Judge Bert Jordan, joined by Judge Brasher with a dissenting opinion by Judge Babs Lagoa

11th Circuit revives FDCPA lawsuit over mortgage statement language

How Westlaw is Summarizing the Latest Eleventh Circuit Opinion

(May 26, 2022)

Resolving an issue of first impression, a divided federal appeals panel has held that mortgage servicers can be liable under the Fair Debt Collection Practices Act for inaccuracies in monthly mortgage statements that contain additional debt-collection language.

Daniels v. Select Portfolio Servicing Inc., No. 19-10204, (11th Cir. May 24, 2022).

In a 2-1 decision, the 11th U.S. Circuit Court of Appeals on May 24 reinstated Constance Daniels’ lawsuit against Select Portfolio Servicing Inc., in which she alleges the company used faulty mortgage statements to try to collect payments she did not owe.

Writing for the panel majority, U.S. Circuit Judge Adalberto J. Jordan acknowledged that Select Portfolio was required to issue the mortgage statements under the Truth in Lending Act, 15 U.S.C.A. § 1638.

However, the mortgage statements fell within the scope of the FDCPA’s prohibition on false or misleading representations, 15 U.S.C.A. § 1692e, because they included additional debt-collection language — “this is an attempt to collect a debt” — the opinion said.

Judge Jordan reasoned that “in determining whether a communication is in connection with the collection of a debt, what could be more relevant than a statement in the communication than ‘this is an attempt to collect a debt’?”

U.S. Circuit Judge Barbara Lagao dissented, saying the majority treated the language like “magic words” that could convert an otherwise routine mortgage statement into a communication covered by the FDCPA.

Judge Lagoa also argued that the decision created a circuit split, although the panel majority insisted that the facts of Daniels’ case distinguished it from others in which federal circuit courts seemed to reach a contrary result.

District Court tosses FDCPA claims

Daniels sued Select Portfolio in the U.S. District Court for the Middle District of Florida in July 2018.

According to the suit, Daniels had prevailed in a state court foreclosure action brought by lender Wells Fargo in 2015, with the judge sanctioning Wells Fargo and enforcing an earlier loan modification agreement between the parties.

But Daniels’ mortgage servicer, Select Portfolio, later issued several monthly mortgage statements misstating the principal balance and amount due, and falsely claiming that her loan was in arrears, the suit says.

At least three of the mortgage statements included the sentence, “This is an attempt to collect a debt,” according to the suit.
Daniels accuses Select Portfolio of using false or misleading representations in connection with the collection of a debt, in violation of the FDCA and the Florida Consumer Collection Practices Act, Fla. Stat. Ann. § 559.72.

Select Portfolio moved to dismiss, saying Daniels was attempting hold it liable for issuing mortgage statements that are required under the Truth in Lending Act.

U.S. District Judge James S. Moody Jr. agreed and dismissed the suit in December 2018. Daniels v. Select Portfolio Servs. Inc., No. 18-cv-1652, (M.D. Fla. Dec. 18, 2018).

Judge Moody said that any discrepancies in language between Select Portfolio’s monthly statements and what is required under TILA “do not take the statements out of the realm of a monthly mortgage statement and into the realm of debt collection communications.”

On appeal, Daniels argued that compliance with TILA does not make a mortgage servicer immune from suit under the FDCPA and, even if it did, the monthly statements at issue included language beyond what is necessary under TILA.

Kaelyn S. Diamond and Michael A. Ziegler of the Law Office of Michael A. Ziegler represented Daniels.

Benjamin B. Brown and Joseph T. Kohn of Quarles & Brady LLP represented Select Portfolio.

By Dave Embree

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Appellate Circuit

Deutsche Bank and Nationstar Watch as 11th Circuit Discharge the Shotgun Despite Hunt’s Pleadings

There can be no doubt that this is a frivolous appeal and we would not hesitate to order sanctions if appellant had been represented by counsel.

Published

on

Hunt v. Nationstar Mortg., No. 21-10398

(11th Cir. May 27, 2022)

MAY 27, 2022 | REPUBLISHED BY LIT: MAY 30, 2022

Before ROSENBAUM, GRANT, and MARCUS, Circuit Judges. PER CURIAM:

Christopher M. Hunt, Sr., proceeding pro se, appeals following the district court’s dismissal of his civil complaint arising out of his 2006 purchase of residential property located in Atlanta, Georgia (the “Property”).

Hunt purchased the Property using proceeds from a loan that he eventually defaulted on, which prompted Nationstar Mortgage, LLC (“Nationstar”), then servicer of the loan, to seek a non-judicial foreclosure on the Property.

After filing or being named in a variety of related lawsuits,1 Hunt filed the instant pro se complaint in Georgia state court in June 2020 and named as defendants Nationstar, the Deutsche Bank National Trust

1 See, g., Hunt v. Nationstar Mortg., LLC, 684 F. App’x 938 (11th Cir. 2017) (unpublished) (“Hunt I”);

[MARCUS, ROSENBAUM AND ANDERSON]

Hunt v. Nationstar Mortg., LLC, 779 F. App’x 669 (11th Cir. 2019) (unpublished);

[PRYOR,W., GRANT AND ANDERSON]

Hunt v. Nationstar Mortg., LLC, 782 F. App’x 762 (11th Cir. 2019) (unpublished);

[PRYOR,W., GRANT AND ANDERSON]

Deutsche Bank Tr. Co. Am., as Tr. for Fifteen Piedmont Ctr. v. Hunt, 783 F. App’x 998 (11th Cir. 2019) (unpublished).

[TJOFLAT, JORDAN AND NEWSOM]

Companies (“Deutsche Bank”), and Jay Bray, the CEO of Nationstar.

He alleged that they had committed, inter alia, mortgage fraud and wrongful foreclosure in violation of federal laws, including the Sarbanes-Oxley Act and the Dodd-Frank Act.2

The district court denied a variety of preliminary motions filed by Hunt;

dismissed, without prejudice, the complaint as to defendant Bray for failure to effect proper service;

and

dismissed, with prejudice, the complaint as to Deutsche Bank and Nationstar, because it was a “shotgun” pleading, was barred by res judicata, and failed to state a claim upon which relief could be granted.3

After thorough review, we affirm.

I.

Whether a court has subject-matter jurisdiction, including removal jurisdiction, is a question of law that we review de novo.

See McGee v. Sentinel Offender Servs., LLC, 719 F.3d 1236, 1241 (11th Cir. 2013).

We also review de novo a denial of a motion to

2 Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, 116 Stat. 745 (hereinafter “Sarbanes-Oxley Act”), and the Dodd-Frank Wall Street Reform and Con- sumer Protection Act, Pub. L. No. 111-203, 124 Stat. 1376 (2010) (hereinafter “Dodd-Frank Act”).

3 Hunt also named Christian Sewing, the Chief Executive Officer (“CEO”) of Deutsche Bank, as a defendant, but he later voluntarily dismissed him.

And after filing the complaint, Hunt sought to add yet another defendant, the Albertelli Law Firm (“Albertelli Law”).

Bray, Sewing and Albertelli Law have not filed any briefs on appeal.

remand to state court. Conn.

State Dental Ass’n v. Anthem Health Plans, 591 F.3d 1337, 1343 (11th Cir. 2009).

A district court’s decision regarding the indispensability of a party is reviewed for abuse of discretion.

United States v. Rigel Ships Agencies, Inc., 432 F.3d 1282, 1291 (11th Cir. 2005).

We will disturb a district court’s refusal to change venue only for a clear abuse of discretion.

Robinson v. Giarmarco & Bill, P.C., 74 F.3d 253, 255 (11th Cir. 1996).

We also review the district court’s denial of a motion for recusal for abuse of discretion.

Jenkins v. Anton, 922 F.3d 1257, 1271 (11th Cir. 2019).

We review a district court’s grant of a motion to dismiss for insufficient service of process, under Rule 12(b)(5), by applying a de novo standard to questions of law, and a clear error standard to the court’s findings of fact.

Albra v. Advan, Inc., 490 F.3d 826, 829 (11th Cir. 2007).

But when a party fails to object to a magistrate judge’s findings or recommendations in a report and recommendation, he “waives the right to challenge on appeal the district court’s order based on unobjected-to factual and legal conclusions.” 11th Cir. R. 3-1.

Under the circumstances, we review a claim on appeal only “for plain error,” if “necessary in the interests of justice.” Id.

We review the dismissal of a “shotgun” pleading under Rule 8 for abuse of discretion.

Vibe Micro, Inc. v. Shabanets, 878 F.3d 1291, 1294 (11th Cir. 2018).

When appropriate, we will review a district court’s dismissal for failure to state a claim under Rule 12(b)(6) de novo.

Am. United Life Ins. Co. v. Martinez, 480 F.3d 1043, 1056–57 (11th Cir. 2007).

We will also review a dismissal

based on res judicata de novo.

Jang v. United Techs. Corp., 206 F.3d 1147, 1149 (11th Cir. 2000).

We review de novo a district court’s conclusions on collateral estoppel, but review its legal conclusion that an issue was actually litigated in a prior action for clear error.

Richardson v. Miller, 101 F.3d 665, 667–68 (11th Cir. 1996).

While pro se pleadings are liberally construed, issues not briefed on appeal are normally forfeited and we will generally not consider them.

Timson v. Sampson, 518 F.3d 870, 874 (11th Cir. 2008).

An appellant can abandon a claim by:

(1) making only passing reference to it;

(2) raising it in a perfunctory manner without supporting arguments and authority;

(3) referring to it only in the “statement of the case” or “summary of the argument”;

or

(4) referring to the issue as mere background to the appellant’s main arguments.

Sapuppo v. Allstate Floridian Ins. Co., 739 F.3d 678, 681– 82 (11th Cir. 2014).

In addition, if a district court’s order rested on two or more independent, alternative grounds, the appellant must challenge all of the grounds to succeed on appeal.

See id. at 680.

When an appellant fails to challenge on appeal one of the grounds on which the district court based its judgment, he is deemed to have abandoned any challenge of that ground, and it follows that the judgment is due to be affirmed.

See id.

II.

Liberally construed, Hunt’s brief on appeal seeks to challenge the district court’s decisions:

(1) denying remand of his case to state court

and

denying his request to file an amended complaint adding another defendant, Albertelli Law;

(2) denying his request

to transfer the case;

(3) denying his request to disqualify the judge;

(4) dismissing, without prejudice, his complaint as to defendant Bray for failure to effect proper service;

and

(5) dismissing his complaint, with prejudice, as to Deutsche Bank and Nationstar.

To be sure, Hunt’s arguments about these decisions by the district court are not clearly stated.

But even if we were to assume that he has preserved his arguments on appeal, they fail on the merits.

First, we are unpersuaded by Hunt’s arguments that the district court should have allowed him to file an amended complaint to add another party to the suit, which would have deprived the federal court of jurisdiction, and should have remanded the case to state court.

Federal courts have diversity-of-citizenship jurisdiction when the parties are citizens of different states and the amount in controversy exceeds $75,000.

28 U.S.C. § 1332(a)(1).

A corporation is a citizen of every state where it was incorporated and the one state in which it has its principal place of business.

Daimler AG v. Bauman, 571 U.S. 117, 133, 137 (2014); 28 U.S.C. § 1332(c)(1).

A defendant may remove any civil action brought in a state court to a federal district court that has original jurisdiction over the action.

28 U.S.C. § 1441(a).

The removing party bears the burden of proving that removal jurisdiction exists.

McGee, 719 F.3d at 1241.

Here, the district court did not err in denying Hunt’s motion to remand. As we’ve held in a previous appeal, his motion was based on his belated and fraudulent attempts to join Albertelli Law, in an effort to defeat the district court’s diversity jurisdiction.

See Hunt I, 684 F. App’x. at 942-44.

However, Hunt asserted federal

claims in his complaint, so the district court had jurisdiction in any event.

28 U.S.C. § 1441(a).

Accordingly, the district court correctly denied Hunt’s requests to remand the case and acted within its discretion to deny joinder.

Rigel Ships Agencies, Inc., 432 F.3d at 1291.

We also find no merit to Hunt’s claims that the district court should have transferred venue of his lawsuit.

A district court may transfer a civil action to any other district or division where it may have been brought “for the convenience of the parties and witnesses, and in the interest of justice.”

Robinson, 74 F.3d at 260 (quoting 28 U.S.C. § 1404(a)).

But in this case, the district court did not err because Hunt did not provide any cognizable reason for a transfer.

It appears that Hunt’s transfer request was based on his belief that case law in the United States District Court for the Middle District of Georgia would be more favorable to him – which is not a legitimate reason for transfer.

See 28 U.S.C. § 1404(a).

Similarly, we reject Hunt’s argument that the district court judge should have recused himself.

A judge must sua sponte recuse himself “in any proceeding in which his impartiality might reasonably be questioned” or “

[w]here he has a personal bias or prejudice concerning a party.”

28 U.S.C. § 455(a), (b)(1).

“The test is whether an objective, disinterested, lay observer fully informed of the facts underlying the grounds on which recusal was sought would entertain a significant doubt about the judge’s impartiality.”

Parker v. Connors Steel Co., 855 F.2d 1510, 1524 (11th Cir. 1988).

“Ordinarily, a judge’s rulings in the same or a related case may not serve as

the basis for a recusal motion.”

McWhorter v. City of Birmingham, 906 F.2d 674, 678 (11th Cir. 1990).

“The judge’s bias must be personal and extrajudicial; it must derive from something other than that which the judge learned by participating in the case.”

Id.

“The exception to this rule is when a judge’s remarks in a judicial context demonstrate such pervasive bias and prejudice that it constitutes bias against a party. Mere friction . . . however, is not enough to demonstrate pervasive bias.”

Thomas v. Tenneco Packaging Co., 293 F.3d 1306, 1329 (11th Cir. 2002) (quotation marks omitted).

As the record before us makes clear, no “objective, disinterested, lay observer fully informed of the facts underlying” these circumstances “would entertain a significant doubt about the judge’s impartiality.”

Parker, 855 F.2d at 1524.

Accordingly, the district court did not abuse its discretion in denying Hunt’s request for recusal or disqualification.

Nor do we find any merit to Hunt’s argument that the district court erred in dismissing the complaint against defendant Bray for lack of proper service.

When a federal court is considering the sufficiency of process after removal, it does so by looking to the state law governing process.

See Usatorres v. Marina Mercante Nicaraguenses, S.A., 768 F.2d 1285, 1286 n.1 (11th Cir. 1985).

Georgia law provides that service made “outside the state” of Georgia is to be done “in the same manner as service is made within the state.”

O.C.G.A. § 9-10-94.

Under Georgia law, service on natural persons is to be made “personally, or by leaving copies thereof at the defendant’s dwelling house or usual place of abode with some

person of suitable age and discretion then residing therein, or by delivering a copy of the summons and complaint to an agent authorized . . . to receive service of process.”

O.C.G.A. § 9-11-4(e)(7).

Notably, Hunt does not dispute these proposed findings set forth by the magistrate judge’s Report and Recommendation (“R&R”), that Hunt:

(1) mailed service to Bray;

and

(2) completed “corporate service” on Deutsche Bank, which Hunt asserted was also effective to serve Bray.

11th Cir. R. 3-1.

But, as the district court determined, Georgia law applied here and required personal service in these circumstances.

Albra, 490 F.3d at 829; O.C.G.A. § 9-11-4(e)(7).

Bray therefore was not properly served under Georgia law, and, for that reason, the district court did not err in dis- missing Hunt’s suit without prejudice as to Bray.

Finally, we find no error in the district court’s denial of injunctive relief and its dismissal of Hunt’s complaint against the two remaining defendants, Nationstar and Deutsche Bank.

A district court has the inherent authority to control its docket and ensure the prompt resolution of lawsuits, which includes the ability to dismiss a complaint on “shotgun” pleading grounds.

Shabanets, 878 F.3d at 1295.

We have described four types of “shotgun” com- plaints:

(1) those containing multiple counts where each count adopts all allegations of all preceding counts;

(2) those replete with conclusory, vague, and immaterial facts not obviously connected to any particular cause of action;

(3) those that do not separate each cause of action or claim for relief into different counts;

and

(4) those asserting multiple claims against multiple defendants without

specifying which of the defendants are responsible for which acts or omissions, or which of the defendants the claim is brought against.

Weiland v. Palm Beach Cnty. Sheriff’s Off., 792 F.3d 1313, 1321–23 (11th Cir. 2015).

“Shotgun” pleadings violate Rule 8, which requires “a short and plain statement of the claim showing that the pleader is entitled to relief,” Fed. R. Civ. P. 8(a)(2), by failing to, in one degree or another, give the defendants adequate notice of the claims against them and the grounds upon which each claim rests.

Shabanets, 878 F.3d at 1294–96.

We generally require district courts to allow a litigant at least one chance to remedy any deficiencies before dismissing the complaint with prejudice, where a more carefully drafted complaint might state a claim.

See id.; Silberman v. Miami Dade Transit, 927 F.3d 1123, 1132 (11th Cir. 2019).

But it need not grant leave to amend the complaint when further amendment would be futile.

Silberman, 927 F.3d at 1133.

Under federal law, res judicata, or claim preclusion, bars a subsequent action if

“(1) the prior decision was rendered by a court of competent jurisdiction;

(2) there was a final judgment on the merits;

(3) the parties were identical in both suits;

and

(4) the prior and present causes of action are the same.”

Jang, 206 F.3d at 1148– 49 & n.1 (quotation marks omitted).

We have held that “if a case arises out of the same nucleus of operative facts, or is based upon the same factual predicate, as a former action, the two cases are really the same ‘claim’ or ‘cause of action’ for purposes of res judicata.”

Baloco v. Drummond Co., Inc., 767 F.3d 1229, 1247 (11th

Cir. 2014) (quotation marks omitted and alterations adopted).

“In addition, res judicata applies not only to the precise legal theory presented in the prior case, but to all legal theories and claims arising out of the nucleus of operative fact” that could have been raised in the prior case.

Id. (quotation marks omitted and alterations adopted).

Collateral estoppel, or issue preclusion, “refers to the effect of a judgment in foreclosing relitigation of a matter that has been litigated and decided.”

Migra v. Warren City Sch. Dist. Bd. of Educ., 465 U.S. 75, 77 n.1 (1984).

Thus, “collateral estoppel is appropriate only when the identical issue has been fully litigated in a prior case.”

In re McWhorter, 887 F.2d 1564, 1567 (11th Cir. 1989) (quotation marks omitted).

“The party seeking to invoke collateral estoppel bears the burden of proving that the necessary elements have been satisfied.”

Id. at 1566.

“[C]hanges in the law after a final judgment [generally] do not prevent the application of res judicata and collateral estoppel, even though the grounds on which the decision was based [may be] subsequently overruled.”

Precision Air Parts, Inc. v. Avco Corp., 736 F.2d 1499, 1503 (11th Cir. 1984).

To safeguard investors in public companies and restore trust in the financial markets, Congress enacted the Sarbanes-Oxley Act of 2002, 116 Stat. 745.

See S. Rep. No. 107-146, pp. 2–11 (2002).

The Act contains several provisions, including a whistleblower protection provision which prohibits a publicly traded company or its officers from discharging an “employee” for providing information to a supervisory authority about conduct that the employee

“reasonably believes” constitutes a violation of federal laws against mail fraud, wire fraud, bank fraud, securities fraud, any SEC rule or regulation, or any provision of federal law relating to fraud against shareholders.

See 18 U.S.C. § 1514A(a)(1).

The Dodd-Frank Act whistleblower provision provides protection to individuals who provide “information relating to a violation of the securities laws to the” Securities and Exchange Commission (“SEC”).

15 U.S.C. § 78u-6(a)(6).

Thus, “[t]o sue under Dodd-Frank’s anti-retaliation provision, a person must first provide information relating to a violation of the securities laws to the [SEC].”

Dig. Realty Trust, Inc. v. Somers, 138 S. Ct. 767, 772–73 (2018) (quotation marks omitted and alterations adopted).

In his brief on appeal, Hunt does not expressly address the lower court’s “shotgun” pleading determination, and, as a result, the district court’s dismissal of the complaint is due to be affirmed.

Sapuppo, 739 F.3d at 681–82.

But in any event, the district court did not err in finding that his complaint was a “shotgun” pleading.

As the record reflects, the complaint consisted of three numbered paragraphs that spanned paragraphs and pages; failed to isolate claims by defendants;

and largely failed to discuss any facts — thereby falling into several of our identified categories of prohibited “shotgun” pleadings.

Weiland, 792 F.3d at 1321-23.

The district court also was correct that amendment would have been futile.

For one, res judicata and collateral estoppel barred Hunt’s claims for breach of contract and fraud, since Hunt sued the same parties for the same alleged breach of contract and fraud in several prior cases.

See, e.g., Hunt I, 684 F. App’x at 944.4

These decisions were final judgments and were “rendered by a court of competent jurisdiction,” “on the merits,” against the same parties, and “the prior and present causes of action [were] the same.”

Jang, 206 F.3d at 1149.

Moreover, even if some of Hunt’s claims had not been explicitly presented in any of his prior cases, they would still be barred by res judicata because every claim arose from the same facts as each of his prior cases, and he could have raised them in any of the prior proceedings.

Baloco, 767 F.3d at 1247.

Also, despite Hunt’s arguments, there have been no “changes in the law” that would “prevent the application of res judicata and collateral estoppel” in this case.

Precision Air Parts, 736 F.2d at 1503.

In addition, Hunt’s claims under the Sarbanes-Oxley Act and Dodd-Frank Act were futile because they fail to state a claim upon which relief could be granted.

As the record reflects, Hunt did not allege that he was an “employee” under the Sarbanes-Oxley Act, nor that he “provide[d] information relating to a violation of the securities laws to the [SEC]” as required under the Dodd-Frank Act.

4 To the extent that Hunt challenges the district court’s decisions under Fed. R. Civ. P. 60(b), we conclude that he has not identified any “extraordinary circumstances” entitling him to relief, and the district court did not abuse its discretion in this respect.

Toole v. Baxter Healthcare Corp., 235 F.3d 1307, 1316 (11th Cir. 2000) (quotation marks omitted).

Somers, 138 S. Ct. at 772–74.

Accordingly, Hunt did not state a cause of action under these statutes, and we affirm.

AFFIRMED.5

5 All of Hunt’s pending motions, which he filed after we imposed a filing restriction on him, are DENIED to the extent they request any relief.

For their part, Nationstar and Deutsche Bank have filed renewed motions for sanctions, requesting monetary sanctions against Hunt for his numerous motions before this Court under 11th Cir. R. 27-4.

Hunt is pro se and we DENY the motions for sanctions at this time.

See Woods v. I.R.S., 3 F.3d 403, 404 (11th Cir. 1993)

(“There can be no doubt that this is a frivolous appeal and we would not hesitate to order sanctions if appellant had been represented by counsel. However, since this suit was filed pro se, we conclude that sanctions would be inappropriate.”).

Although we are reluctant to impose sanctions on pro se appellants, we warn Hunt that our Court has imposed sanctions in circumstances like these, even for pro se litigants, and he is strongly cautioned against bringing any further frivolous motions or claims.

See Ricket v. United States, 773 F.2d 1214, 1216 (11th Cir. 1985)

(imposing sanctions on a pro se appellant who had been warned by the district court that the issues on appeal were frivolous).

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Appellate Circuit

God Goes in Front of Me and Makes the Crooked Straight and I Get to Keep My Pension

Ex-Inmate and Former Congresswoman Corrine Brown is Confident of Her Plea Deal Keepin’ Her out of Jail and Ending Her Criminal Case.

Published

on

Former congresswoman Corrine Brown to take plea deal
Brown faced retrial this fall on federal fraud charges

May 17, 2021 | REPUBLISHED BY LIT: May 17, 2022

JACKSONVILLE, Fla. – Former congresswoman Corrine Brown is set to change her plea Wednesday in a federal case that involves charges of fraud and conspiracy, avoiding a retrial that was scheduled to take place this fall.

Tuesday morning, News4JAX reporter Jim Piggott spoke with Corrine Brown by phone. She said everything will come out in court tomorrow.

“I want you to know, God has been good to me,”

Brown said.

“I just talked to my pastor and I know that He goes in front of me and make the crooked straight. That’s all I can tell you, He’s good.”

Former U.S. Rep. Corrine Brown is set to change her plea Wednesday in a federal case that involves charges of fraud and conspiracy, avoiding a retrial that was scheduled to take place this fall.

Brown was indicted in 2016 on charges that included conspiracy, wire fraud, and tax fraud, on accusations that she used contributions to the One Door for Education charity for personal expenses.

Brown was convicted on some of the charges in May 2017, and began a five-year prison sentence in January 2018. Brown was released in April 2020, due to coronavirus concerns.

Following her conviction, Brown appealed the guilty verdict, arguing the trial judge wasn’t justified in replacing a juror who said the Holy Spirit told him Brown was not guilty.

A three-judge panel of the 11th Circuit of the U.S. Court of Appeals initially upheld Brown’s conviction.

Brown’s attorneys then asked for a rehearing before the full 11th Circuit, known as an “en banc” hearing. In May 2021, the appellate court reversed the conviction with a 7-4 decision, sending the case back to the district court for a potential retrial.

In October 2021, we learned that prosecutors planned to re-try Brown on the felony counts she faced in her 2017 trial.

At the time, we learned prosecutors had already extended her a plea deal to avoid being retried and the possibility of a return to prison, an offer she rejected at the time.

Following the appointment of a new defense team, Brown’s retrial was set to take place in September of 2022.

News4JAX Jim Piggott spoke with attorney Curtis Fallgatter,

“(Jim) Are you surprised at all?

(Curtis) A little bit, but not terribly because of the age of the case, the complexity of the case, the number of issues, reversal on appeal issues about a retrial, can I get a conviction, the age of Brown.”

The court document indicating that Brown will be changing her plea does not indicate what charges she may be pleading guilty to, or what sentence could potentially be imposed.

Fallgatter doesn’t believe Brown will serve any additional time.

He said she would not agree to that, and the agreement should be an end to the case.

Brown is getting her pension, and that likely will not change.

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